The Minutes for the Monetary Policy in August show the evolution in risks for RBA. Much of this focus for 2025 has been ensuring inflation returns sustainably to the mid‑point of the RBA’s target band.

With that goal largely secured, the Board’s focus is clearly evolving  to downside risks to the labour market.

As a reminder the RBA cut the cash rate by 25bp in August, the third rate cut this cycle to take the cash rate to 3.60%. It was a unanimous decision (9‑0) after the surprise on hold move in July (6‑3).

In short members of the Board unanimously agreed that “information received since the previous meeting had provided the further support that they had been seeking for the judgement that inflation was heading sustainably towards the midpoint of the target range”.

And staff forecasts were consistent with the Board achieving its inflation and full objectives over the medium term, “conditional on reducing the cash rate at this meeting and somewhat further thereafter”.

The Minutes highlight that risks to the outlook are in both directions. But what seems clear from the Minutes today is that the Board fully expects that “some further reduction in the cash rate over the coming year” will be required to preserve full employment and ensure inflation hits the mid‑point of the target.

We continue to expect the RBA to cut the cash rate by 25bp in November. At this stage the RBA Board will remain cautious in the pace of easing given inflation forecasts show trimmed mean CPI a little above the mid‑point and the labour market remains a little tight. Private demand is also showing signs of recovery. And uncertainty over the neutral cash rate and degree of spare capacity remain uncertain.

But the Minutes reinforce the data dependent nature of the RBA. A deterioration in the labour market, or a faster and steeper moderation in CPI could speed up cuts. Incoming data continues to be critical and the Board to taking decisions meeting by meeting.

But, and this is the new information from the Minutes, a “slightly” faster pace of cuts could be warranted “if the labour market turned out already to be in balance”.

Economists, including us here at CBA, have suggested the NAIRU (non‑accelerating inflation rate of unemployment) was around current levels.

Part of the concern the RBA Minutes raised is if the handover from the non‑market sector to market sector employment was not proceeding smoothly.

If this is the case, wages growth would slow a little faster than the RBA expect and could suggest downside risks to inflation would emerge. We have raised this as a concern and we will receive updated data on this in the Q2 25 labour account due 05/09.

A deterioration in the labour market would see a faster pace of easing by the RBA.. The RBA note it is getting harder to judge if there was spare capacity in the labour market as the economy moves towards balance.

The Minutes note there was not definitive information yet to judge this, and as a result they would “need to be attentive to the data and to be guided by how they shape the evolving assessment of risks”.

On the global front the Minutes note there has been little impact on the domestic economy to date. Any impacts on the economy given typical lags would be evident in late 2025 and were only expected to be modest.

It is important to note that recent data both from business and consumer surveys have improved. This has given us confidence that a recovery is occurring. We currently see end year GDP growth at 2.0%/yr, compared to RBA forecasts of 1.7%/yr. Much of this difference is our confidence of an improving consumer backdrop. See here for details.

If the economy does not rebound as quickly as we forecast, further easing of policy is likely to keep inflation from undershooting the mid‑point of the target.

Given the RBA’s increased focus on the data flow there are several key pieces of data between now and the 29‑30 September Board meeting. The monthly CPI data is due tomorrow and we receive a second monthly CPI before the next Board meeting. Q2 25 GDP data is due 03/09 as well as labour market data due 18/09. This collective flow of data will be important to assess the need and timing of further easing.