RBA seen cutting three more times by early 2026, matching market

Economists expect Australia’s central bank will deliver three more interest-rate cuts by early 2026, up from two seen previously, bringing their outlook into line with money market pricing.

The Reserve Bank of Australia (RBA) will take its cash rate to 3.1 per cent in the first quarter of 2026, from 3.85 per cent now, and then pause for a prolonged period, according to the median estimate of 40 economists in a Bloomberg survey released on Wednesday (Jul 23).

While the RBA’s easing cycle has coincided with counterparts from the UK to Canada and New Zealand, those peers have broadly moved at a faster pace. By contrast, the US Federal Reserve has yet to cut this year. Bloomberg Economics anticipates further measured reductions in coming months by most of the 23 central banks in its quarterly guide to the global monetary outlook.

Wednesday’s poll follows the RBA’s surprise decision this month to hold its cash rate steady, defying expectations for a cut. Minutes of the rate-setting board’s Jul 7 to 8 meeting released on Tuesday showed policymakers judged that a third reduction in four reviews would conflict with their “cautious and gradual” easing approach.

Luci Ellis, chief economist at Westpac Banking, pointed out that the RBA’s preference is for rate reductions that coincide with the release of the staff’s quarterly update of macroeconomic forecasts.

So a July move “would have looked a bit like the market pricing forced the cut”, said Ellis, who was previously an assistant governor at the RBA. “The more recent data flow, including on the labour market, makes an August timing even more likely than it did immediately after the July meeting.”

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Figures last week showed Australian unemployment unexpectedly climbed to a four-year high in June as hiring almost stalled.

Still, the 4.3 per cent jobless rate and annual employment growth of 2 per cent were both broadly in line with the RBA’s forecasts.

That’s one reason why some economists, including Bank of America’s Nick Stenner who accurately forecast the July pause, see a shallower easing cycle, with just two more cuts to come. Vanguard Investments Australia’s Grant Feng concurs.

“We believe that the disinflation process in Australia will be slow,” Feng said. “Consequently, the RBA is likely to adopt a cautious stance towards rate cuts, with the pace of easing expected to be gradual throughout the year.” BLOOMBERG