There’s been a lot of breathless commentary about how the RBA’s Statement on Monetary Policy (SMP) didn’t seem to justify a rate cut this month.

These analyses focus on the bank’s forecast for trimmed mean inflation — it’s preferred, less volatile measure of price rises — remaining stuck at 2.7% until mid-2027.

After the RBA review, the bank committed to aiming for the mid-point of its 2-3% inflation target band (2.5%).

So, the argument goes, how could it cut rates if inflation was going to be stuck above that level.

However, those analyses miss a fundamental point — the RBA always uses the market pricing for future interest rate moves as the input for its model.

It does this so as not to offer its own prediction or hint as to what it will do with interest rates, it simply plugs in the market’s number.

At the time the RBA locked-off the data for its latest forecasts — Wednesday last week — the market was pricing in three rate cuts this year and one in the first half of next year.

So, that means the RBA’s forecast that inflation would remain stuck at 2.7% was based on it cutting rates four times over the next year and a bit.

If its models had factored in fewer rate cuts, it is quite certain that forecast inflation would also have been lower — at, or even below, the mid-point of its target.

Sitting inside the SMP lock-up, I took that to imply that the bank would think it needed to cut, but just not four times.

That’s what I noted in my analysis, most of which was written before I knew what the rates decision was (they don’t tell us in the lock-up, we find out at 2:30pm AEDT like everyone else).

It’s also what Michele Bullock patiently explained when quizzed on this at the post-meeting press conference.

“That 2.7% is actually predicated on a market path which sees three more cuts,” she said.

“So what that tells you is that if we really want to hit 2.5, which we do, and I’ll come back to that, then that market path, on the basis of the information we have at the moment, is unrealistic.”

The takeaway? It’s simply wrong to say the RBA’s economic forecasts didn’t justify a rate cut.

They don’t justify four rate cuts, and that’s why we’re unlikely to get them, unless the RBA’s forecasts are wrong — which, like most forecasts, they usually are.