RBA Recap

• The RBA held the cash rate at 4.35% in June, a calculated pause rather than a signal of comfort, as the Board moved into observation mode following three consecutive increases, assessing how tighter financial conditions are transmitting through the economy before determining whether further action is warranted.
• Inflation remains uncomfortably high and the Board’s principal concern, with pass-through to the broader economy continuing, expectations remaining elevated and risks to the outlook firmly skewed to the upside.
• The June meeting marked a clear shift in policy approach where the costs of overtightening are now being weighed alongside the inflation imperative, but the Board has made clear it remains prepared to act if the data demands it.

The Australian Economy

• Inflation began showing early signs of retreat over the period, with headline CPI edging down to 4.2% in April – a welcome development, though underlying pressures proved sticky and the balance of risks continued to lean firmly one way.
• The labour market delivered the standout surprise of the period, with employment falling 18,600 in April and unemployment climbing to a new cycle high, though trend data provided a more measured read and cautioned against placing too much weight on a single monthly print.
• The broader economy continued to slow under the weight of cumulative tightening, with household demand softening and Q1 GDP growth falling short of expectations, even as a historic surge in business investment provided a meaningful counterpoint to the weakness elsewhere.

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