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Investing.com - The Reserve Bank of Australia (RBA) is expected to cut interest rates by 25 basis points at its meeting next Tuesday, according to a new report from Capital Economics released Monday.
The economic research firm cited inflation trending lower and now within "striking distance of the midpoint of the RBA’s 2-3% target" as the primary justification for the anticipated rate reduction, which would mark the central bank’s first easing move in its current cycle.
Capital Economics noted that while the RBA Board will likely maintain its vigilance regarding the "limited spare capacity in the economy and the labour market," these concerns are unlikely to prevent action given the inflation progress.
The firm projects further rate cuts beyond market expectations, maintaining its "below-consensus terminal rate forecast of 2.85%" as it believes "incoming data flow will ultimately disappoint" regarding economic strength.
The report suggests a more aggressive easing cycle than most analysts anticipate, with Capital Economics expressing confidence in its outlook despite acknowledging the "nascent recovery and still-tight labour market" that could potentially slow the pace of future rate reductions.
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