Synopsis:

ANZ now expects the Reserve Bank of Australia (RBA) to cut the cash rate by 25bp at its July meeting, citing persistently weak retail sales, stalling consumer confidence, and renewed US trade policy uncertainty. However, they caution that the decision will likely be a close call, and the pace of further cuts will depend on post-meeting signals.

Key Points:

• Weak Retail & Consumer Data:
  • Recent data confirm a weak six-month trend in retail sales and a stalling uptrend in consumer confidence.
  • Combined, these factors argue for additional policy support to underpin domestic demand.

• Tariff Uncertainty Adds to the Case:
  • The approaching expiry of the US tariff pause and the risk of renewed trade frictions are adding to the downside risks for the Australian outlook.

• Path of Least Regret:
  • ANZ expects the RBA Board to judge that a July move is prudent, choosing a 25bp cut now rather than waiting for the August SMP forecast update.
  • This aligns with the approach taken during the last two rate cuts and the 2023 tightening.

• Decision to Be Tight:
  • Despite the call for a cut, ANZ notes their four top-down cash rate indicators are close to neutral, implying no strong directional signal.
  • This means the decision could be more finely balanced than market pricing suggests.

• Pace of Easing to Be Reviewed:
  • ANZ retains its call for 25bp cuts in both July and August, but will reassess the pace of easing after the July decision and Governor’s press conference.

Conclusion:

ANZ expects the RBA to deliver a 25bp rate cut in July, seeing it as the “path of least regret” in light of soft consumer data and tariff risks. But with policy signals mixed, they flag a closely balanced call and will reassess the forward path after the meeting.