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Bendigo Bank's August Economic Update

7 August 2025

In Bendigo Bank’s latest Economic Update, our Chief Economist David Robertson outlines:

  • the compelling case for an RBA cash rate cut of at least 25 basis points
  • risk of inflation rebound recedes
  • US in for a rough ride, while economic storm clouds set to clear locally

All eyes on Tuesday for cash rate cut

With a recent jump in unemployment and inflation continuing to recede, the case for the RBA cutting rates with more urgency is building, Mr Robertson said, and a 35 basis point cut next Tuesday – rather than the standard 25 basis point cuts – would be a “neat compromise”.

“The decision on August 12 appears to be just a matter of how large a cut will be delivered,” Mr Robertson said.

“A month on from the RBA surprising markets by keeping rates on hold, insisting they wanted more evidence of moderating inflation, we’ve seen nothing but confirmation that inflation is at or below its target of 2.5%, and that the risks of any rebound in underlying inflation have receded further.

“Since then the jump in unemployment to 4.3% for June, together with the low, benign read for second quarter CPI suggests the RBA would have been vindicated in cutting rates last month.”

Mr Robertson said the main arguments against larger cuts are the consistent messaging from the RBA for patience in adjusting monetary policy, and the latest household spending numbers, where both discretionary and essential spending edged higher, but at a relatively “tame pace”.

Mr Robertson continues to predict quarterly cuts down to a neutral level around 3%-3.25% by February next year.

“Households and small businesses are still in need of interest rate relief as they claw back the impacts of the inflation shock from 2022-24, and as we continue to deal with a highly complex and uncertain global backdrop.”

US unemployment rate set to rise as economy takes tariff hit

Mr Robertson said the latest US data seems to confirm what all economists and central banks have been warning: that despite the size of US tariffs now averaging around 17% (compared to 27% on ‘liberation day’ in early April) that they risk slowing down the US economy and simultaneously adding to US inflation.

“With its sharp fall in non-farm payrolls and downward revisions to previous months, the latest US jobs data suggests that the US unemployment rate is about to rise as the economy adjusts to tariffs and immigration policy,” Mr Robertson said.

“Normally this would see the Federal Reserve cut rates in response, which is now quite plausible in September; but the latest US inflation data and uncertainty about its path ahead makes this a much tougher call.”

Mr Robertson said stock markets have been volatile digesting these complex conditions, but are continuing to shrug off the short term worries, trading at near record highs supported by the promise of AI potentially supercharging the economy.

Local economic storm clouds forecast to clear

Despite global conditions remaining “highly challenging and uncertain”, Australia’s lower tariff rate of 10% is a relatively welcome outcome.

“Recent progress with moderating inflation leaves us with one less thing to worry about,” Mr Robertson said.

“If our forecasts are right, and the RBA cuts rates twice more this year - and potentially again in February - the clouds should continue to clear.”

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