The Reserve Bank of Australia (RBA) is expected to cut interest rates on Tuesday with at least two more reductions to come this year, according to market economists.
They are forecasting a 25 basis point (bp) lowering of the official cash interest rate (OCR) when the RBA makes its next monetary policy announcement at 2:30 pm AEST (4.30am GMT Monday), although at least one bank has tipped 50 bp.
The probability of a smaller cut is 96%, according to the RBA Rate Tracker, which shows market expectations of a change in the OCR based on the Australian Securities Exchange’s 30 Day Interbank Cash Rate Futures prices.
Commonwealth Bank (CBA) Group economists expect the RBA Board to cut interest rates from 4.1% to 3.85% as core inflation remains within its 2%-3% target range while trade tensions fuel economic growth concerns, CommSec said.
“We continue to look forward to an end year cash rate of 3.35% and our base case has the RBA cutting the cash rate by 25 basis points this year in May, August and November,” they wrote in an economics research note.
In a note ANZ said although the resilient labour market, reflected in unemployment remaining between 3.9% and 4.2% for a 14th consecutive month in April, may add to discussions about whether to cut or hold rates, it expects a 25 bp cut tomorrow.
Goldman Sachs said labour market data remained broadly in line with the RBA's standing forecasts and it continued to expect the central bank to cut by 25 bp, followed by cuts in July and August to a terminal rate of 3.25%.
“That said, we see risks skewed to a more gradual pace of cuts,” the investment bank said in an economics research note.
The National Australia Bank’s (NAB) economics team has forecast 100 bp of monetary policy easing by August 2025, starting with a higher-than-consensus 50 bp rate cut in May.
“However, we acknowledge that our call requires the RBA to shift its thinking on a couple of fronts,” NAB said in an article by its economics team.
The central bank had to acknowledge inflation risks were biased to the downside due to trade diversion and weaker global growth and it had to be less cautious about policy strategy and be willing to act quickly and boldly.
“Nonetheless, even if the RBA only cuts by 25 bp in May, we would still expect a 100 bp of easing to be the first order of business,” NAB said.
Westpac said Australian economic data last week did not change its view that the RBA would deliver a 25 bp rate but it would be interesting to see refreshed staff forecasts and the Board’s framing of risks around the domestic and global outlook.
It said all measures of inflation were firmly within the RBA’s 2-3% target band and further easing of the restrictive settings policy settings weighing on consumers was warranted, particularly given the more unsettled and threatening global backdrop.
“The staff’s updated forecasts, alongside the Board’s framing of risks to the domestic and global outlook, will be a key focus,” Westpac’s economics team said in its Australia & New Zealand Weekly.
When the RBA last cut interest rates in February, economists were expecting more reductions despite efforts by the central bank to hose down these expectations.
