What would the RBA do if the Fed cuts rates by 50 bps? Via Investing.com

Citi economists analyzed possible actions by the Reserve Bank of Australia (RBA) in response to a hypothetical large rate cut by the US Federal Reserve.

The comment from research firm Citi comes amid speculation about moves by global central banks and recent statements from the RBA governor and deputy governor, which indicated resistance to market expectations for interest rate cuts this year.

The firm assumes that the RBA’s communication strategy could change if the Fed implements a significant 50 basis point cut in the policy rate at the Federal Open Market Committee (FOMC) meeting in September.

According to Citi, such a move by the Fed could lead to market optimism and subsequent predictions for more aggressive easing from the RBA. However, Citi maintains that regardless of the Fed’s actions, the RBA is unlikely to cut rates in 2023.

“…(If the US Fed does indeed cut 50bp at the September FOMC meeting, then the September RBA meeting a week later raises the risk of more dovish Delphic guidance from Governor Bullock against market prices,” Citi economists wrote in a note.

“Barring a surprise in lower inflation in Q3 — we cut average inflation to 0.8% — and an unexpected rise in the unemployment rate, we don’t see the RBA cutting rates this year, even if the Fed cuts policy rates by 50 bps increases.”

Citi concluded that there is only the August Labor Force Survey ahead of the next RBA meeting.