BUZZ-COMMENT-RBA rate decision: 25bp cut with a hawkish tone?

Feb 17 (Reuters) - The Reserve Bank of Australia will announce its rate decision on Tuesday, with a 25 basis point cut to the official cash rate (OCR) - which has been steady at 4.35% since November 2023 - widely expected.

The case for easing isn't, however, bulletproof, and if the RBA does cut, the accompanying statement will potentially have a hawkish tone. RBA continuing to hold rates steady is less probable but not entirely off the table.

Governor Michele Bullock has consistently indicated trimmed mean inflation is the key metric. It printed 3.2% y/y for Q4 from 3.6% in Q3, still outside the RBA's 2%-3% target range. The conundrum: does the RBA cut now, risking that the victory over inflation is incomplete, or wait to ensure inflation is definitively tamed? A premature cut that needs reversing later would be very damaging to their credibility.

Despite this, 90% of economists polled and markets 0#AUDIRPR expect easing. Their rationale? Headline CPI is within the target range, and Q4’s trimmed mean inflation at 0.5% q/q was the lowest since 2021, suggesting a sustainable path downward.

Domestically, data remains solid: employment growth is strong, unemployment has edged lower, and retail sales have improved marginally. However, external risks - particularly renewed US trade tensions - have increased.

With a 25bp cut already priced in, AUD downside pressure should be minimal. However, a hawkish statement could extend the recent AUD/USD rally, while a no-cut shock would see the pair spike toward 0.6550 resistance.

For more click on FXBUZ