July rate cut on the table as economists pull forward expectations
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More news: Economists are rapidly shifting their calls for quicker rate cuts than expected at the end of last week.
Analysts at the Commonwealth Bank are now expecting their anticipated two more cuts to 3.35% to materialise sooner following the tone from the Reserve Bank today.
At the end of last week, its economists said in a note that they were expecting two more 25 basis point cash rate cuts in August and November after a May cut.
"We now expect these cash rates cuts to occur a little quicker and favour an August and September cut,” they said in a note.
They are also describing the upcoming July meeting as “live”.
NAB economists are now anticipating three 25 basis point cuts this year, down to 3.1%. They think this will take place in July, August and November.
NAB had expected a 50 basis point cut at the meeting today, and its economists noted that this was discussed by the board as a possibility.
The shift in language from the RBA board to assessing monetary policy to be “somewhat less restrictive” has been interpreted by economists as opening the door to additional easing amid global trends, lower growth and an openness from the RBA that its perspective of full employment may need re-analysis.
Goldman Sachs has also shifted to a 3.1% terminal rate, with cuts in July, August and November, down from a previous expectation of a 3.25% rate with cuts in July and August.
Westpac has not adjusted its expectation for August and November cuts down to 3.35%.
ANZ expects a rate cut in August, followed be one more in the first quarter of 2026.
Bullock warns of economic risk from geopolitical ‘rollercoaster’
More news: Reserve Bank governor Michele Bullock has warned that global uncertainty is front of mind for the central bank as the economy shifts to a new set of challenges, with inflation back in the target band.
Speaking to reporters after the RBA announced its latest rate cut, she acknowledged the period of high rates had been challenging for many households and businesses, she noted it had been necessary to get inflation down. She also pointed out that rates had not been pushed as high as in other countries in an effort to avoid a spike in unemployment.
“The cautious approach we have taken has got us to this point where inflation is now below 3% and employment is holding up,” Bullock said.“There’s now a new set of challenges facing the economy,” she said.
She explained that global economic and policy uncertainty has “increased substantially”. “It’s been a complete rollercoaster I’d have to say,” she said.
The RBA today downgraded its expectations for global economic growth and is watching markets closely, with Bullock noting that the central bank is “not sure that the financial markets will remain nice and steady”.
“The key point about the situation we’re in is it’s not just uncertain, it’s actually unpredictable,” she said.
Pressed by reporters on whether a recession in Australia is possible, she agreed this could be the case in a “very extreme circumstance” such as a severe deterioration in the global environment but added this wasn’t the central case of the RBA right now.
She said the impacts of tariffs would depend on negotiations between the US and major trading partners, the response from trading partners, the extent to global supply chain disruption, the effects on business investment and the ability to divert trade.
The RBA thinks overall impacts will be disinflationary for Australia, but there is a risk that supply chain issues can have inflationary consequences.
One of the key themes of the conference has been uncertainty about the future. Bullock is, as expected by economists, not providing forward guidance and has little temptation to do so given the murky outlook.
Big four banks reduce variable home loan rates in line with RBA cut
More news: Commonwealth Bank, Westpac, NAB and ANZ have cut interest rates for home loan customers following the RBA’s decision to lower the cash rate by 25 basis points.
CBA will reduce rates by 25 basis points for its variable home loans and business bank loan customers.
NAB and ANZ will both cut 0.25% on their respective variable home loan interest rates, effective 30 May, while Westpac will do the same from 3 June.
Deposit customers for its Westpac Life product will have also have their total variable rate with bonus interest cut by 25 basis points to 4.5%, effective 30 May, while the same amount will be cut for new customers of Westpac eSaver.
Job isn’t finished on cost of living despite RBA cut, says Treasurer
More news: Treasurer Jim Chalmers has admitted the cost-of-living crisis hasn’t completely eased and global uncertainty remains a concern but said rate cuts would bring meaningful relief.
“It is the right decision made for the right reasons,” Chalmers said about the RBA’s 25 basis point rate cut, noting governor Michele Bullock will outline the reasoning and politics does not play a role.
“Look, today’s interest rate cut doesn’t mean that the job is finished when it comes to the cost of living but it will help millions of Australians with a mortgage,” he said in a press conference in Parliament.
“The benefit that people will get from today’s interest rate decision is twice that when you combine the February and now the May decision as well.”
He also remarked on the unusual set of circumstances in which this cut has been made.
“This is the first time since records began that we’ve got inflation in the low-4% [range] at the same time as we’ve got both measures of inflation back in the target band at the same time,” Chalmers said. “This decision does reflect the substantial progress we’ve made on inflation but also that we haven’t had to pay for that progress with substantially higher unemployment or a substantially slower economy, and that makes us unusual around the world that we’ve been able to get inflation down.”
He said the soft-landing was especially important amid global economic uncertainty “not just out of DC but out of China, indeed right around the world”.
“Australia is better placed and better prepared than most to deal with that uncertainty,” he said.
He declined to comment on whether additional energy support would be provided to households, noting decisions would be made in light of the situation at the time around future budgets and that it is currently scheduled to end.
Chalmers also took a swing at the opposition amid the split between the Nationals and the Liberals.
“This is a nuclear meltdown and the Coalition is now nothing more than a smoking ruin. They are hopelessly divided on personalities and on policy," he said.
"It shows that the new leadership has failed its first test. It shows they’ve learned absolutely nothing from the last few weeks or indeed the last few years … it’s hard to see how Australians can take them seriously when they don’t even take each other seriously.”
He said this was in contrast with the government delivering "responsible economic management" and that this would be the focus amid a "dark shadow" being cast by volatile global developments.
Reserve Bank cuts rates to 3.85%
The news: The Reserve Bank has cut rates by 25 basis points to 3.85% at its third meeting of the year, in line with economic and market expectations.
RBA governor Michele Bullock will speak to the media at 3.30pm AEST about the decision.
The central bank's next rate meeting is 8 July.
The numbers: Inflation has come down steadily in the most recent data. The headline CPI rose 0.9% in the March quarter, and 2.4% over the 12 month period.
The critical trimmed mean measure, which is the RBA’s preferred inflation gauge for underlying trends, was 2.9% on an annual basis, down from 3.3% in the December quarter. Economists have noted that several measures show inflation is firmly returning to the target centre point of the RBA’s 2% to 3% band.
The context: This is the first rate meeting since US President Donald Trump's 'Liberation Day' and broad high tariffs. There has since been a pause announced to these tariffs as countries negotiate, including China. RBA officials have typically been cautious about making firm conclusions about the tariffs but, overall, they are expected to have a negative impact on the global economy.
The RBA cut rates for the first time in the cycle in February, but remained on hold when it last met on 1 April. While economists were in agreement about today's easing, there are varied views about how many more cuts are likely and the timing of further easing.
The RBA board today said it "considered a severe downside scenario and noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia".
What they said: "Uncertainty in the world economy has increased over the past three months and volatility in financial markets rose sharply for a time. While recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries," the monetary policy board said in a statement.
"The Board judged that the risks to inflation have become more balanced. Inflation is in the target band and upside risks appear to have diminished as international developments are expected to weigh on the economy. With inflation expected to remain around target, the Board therefore judged that an easing in monetary policy at this meeting was appropriate.
"The Board assesses that this move will make monetary policy somewhat less restrictive. It nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply."
The sources: Reserve Bank monetary policy board statement, CBA media release, CBA media release, Westpac media release, ANZ media release
