Understanding the RBA's Monetary Policy Statement:

Insights & Asset Class Implications for Your Financial Planning

The RBA Monetary Policy Statement sets out the Reserve Bank of Australia's assessment of current economic and financial conditions, as well as the outlook that the Monetary Policy Board considers in making its interest rate decisions. It includes an analysis of inflation, employment, and other economic indicators, and provides insights into the RBA's dual mandate of maintaining price stability and full employment.

Below, we have summarised their key findings and our assessment of the potential impact on the different asset classes.

Key Findings from the RBA's Monetary Policy Statement (May 2025):

1. Inflation Trends:

   • Stable Inflation: Inflation rates are within the RBA’s target range of 2-3%, with trimmed mean inflation at 2.9% over the year to the March quarter.

   • What This Means: Stable inflation suggests a predictable economic environment, reducing the risk of sudden price increases that could erode investment returns.

2. Interest Rate Adjustment:

   • Rate Cut: The RBA has lowered the cash rate target by 25 basis points to 3.85%.

   • What This Means: Lower interest rates typically reduce borrowing costs, stimulate economic activity, and can lead to higher asset prices.

3. Labour Market Conditions:

   • Steady Unemployment: The unemployment rate remains steady at around 4.1%.

   • Wages Growth: Employment growth is firm, but private sector wages growth has declined.

   • What This Means: Stable employment supports consumer spending, but slower wage growth may limit disposable income and spending power.

4. Economic Outlook:

   • Softer Consumption Growth: Household consumption growth is softer than expected.

   • Global Uncertainty: Economic uncertainty, particularly related to trade policies, is expected to impact domestic activity and inflation.

   • What This Means: Softer consumption growth may signal caution among consumers, while global uncertainties could affect export-oriented sectors.

Potential Impacts on Asset Classes:

Australian Sharemarket:

• Interest Rate Cut: Lower borrowing costs can boost equity markets because companies can finance growth more cheaply. This often benefits sectors like banking and financials.

• Sector Performance: Technology and healthcare sectors may see positive momentum due to consistent earnings and lower borrowing costs, while resource sectors might face challenges due to global economic uncertainties.

• Market Volatility: Expect some ups and downs in the market due to global trade tensions and domestic uncertainties.

Global Sharemarket:

• Trade Policy Uncertainty: Trade tensions can strain supply chains and increase costs, impacting global share prices. Companies might delay investment decisions due to uncertainty.

• Economic Growth: Slower global growth may dampen investor sentiment, but improving growth in regions like Europe and Japan can support returns.

• Monetary Policy: Continued easing by central banks can boost stock valuations, making shares more attractive.

Property:

• Interest Rates: Lower mortgage rates may boost property demand because borrowing becomes cheaper, but high rates could persist, affecting affordability.

• Housing Supply and Demand: Increased inventory gives buyers more options, which can moderate price growth. More homes on the market can lead to longer selling times.

• Economic Conditions: Softer household consumption and global uncertainties may impact property dynamics, potentially slowing price increases.

Fixed Interest:

• Interest Rate Cut: Lower yields on fixed income investments mean reduced income from interest payments. This prompts a review of bond allocations to ensure portfolios continue to meet income and risk objectives.

• Inflation-Protected Securities: Stable inflation outlook supports the inclusion of inflation-protected securities to safeguard against unexpected inflationary pressures.

Reminder for Our Clients

We take these insights into consideration when reviewing your portfolio. Our approach is always tailored to your risk profile and personal circumstances at the time. If you have any questions or need further clarification, please feel free to reach out to us.

Source: RBA Statement on Monetary Policy May 2025

The information in this communication is factual in nature. It reflects our understanding of existing legislation, proposed legislation, rulings etc. as at the date of issue, and may be subject to change. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. Whilst care has been taken in preparing the content, no liability is accepted for any errors or omissions in this communication, and/or losses or liabilities arising from any reliance on this communication.