RBA Governor Michele Bullock has had events overtake her since the last board meeting. Picture: NewsWire / Nikki Short
Regardless who wins the federal election on May 3, the decision on how interest rates will move just weeks later has already been made – and there’s nothing the Reserve Bank can do about it.
Australia’s biggest banks and the stock market aligned just 48 hours after the April RBA board meeting – at which the board decided to hold the cash rate target at 4.1 per cent – with economists now agreeing the world has shifted so dramatically that a May rate cut is now a certainty.
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30 Day Interbank Cash Rate Target Implied Expectation of change. Source: asx.com.au
The Commonwealth Bank, which expects RBA to cut by 25 basis points when the board meets May 20, warned world trade risks had escalated to the point where there was now even a chance RBA could consider cutting by a shock 50 basis points.
The RBA board last met on April 1, two days before the US President Donald triggered a worldwide trade war with his lifting of tariffs on ‘Liberation Day’.
The largest of Aussie banks, a CBA Economics statement said “it has felt longer than two weeks since the April RBA Board Meeting. The US trade war has escalated, financial markets have been extremely volatile and global growth fears have become more than a tail risk. Financial markets are pricing in more rate cuts locally with the chance of a 50bp rate cut priced in for May”.
US President Donald Trump, pictured with Vice President JD Vance, put financial markets into an absolute spin two days after the last RBA board meeting with his tariffs. Picture: AP Photo/Alex Brandon.
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The RBA board minutes released Tuesday stated “while overall financial conditions in Australia had eased a little with the cut in the cash rate target in February, members’ assessment was that they were still restrictive”.
CBA senior economist Belinda Allen said this suggested policy has room to go lower if required.
TD Securities senior Asia-Pacific rates strategist Prashant Newnaha said remarks by RBA Governor Michele Bullock last week that Australia was not seeing the “same degree of impact as previous market events like 2008” off the Trump tariffs implied that RBA was not in a rush to cut “aggressively”.
“The implication is the RBA is not considering cutting the target cash rate by an aggressive 50bps at its May meeting,” he said. “Of course the situation may change, but we believe the RBA is on track to cut 25bps at its May meeting, comfortable with its inflation outlook.”
He said the monthly CPI indicator suggested trimmed mean inflation would be likely fall below 3 per cent in the March quarter.
Househunters can expect to see interest rates lower this year.
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CBA said the May RBA meeting will not just have Donald Trump to contend with but also “additional data about inflation, wages, the labour market and trends in economic activity, along with a fresh set of economic forecasts and further information about the likely evolution of global trade policies”.
“We expect the upcoming domestic data flow in totality will be enough to see the RBA cut the cash rate in May by 25bp. The deteriorating global outlook makes this even more likely despite Australia being in a relatively good position to weather the storm”.
The March labour force data will be released on Thursday – with the unemployment rate expected to go higher to 4.2 per cent.
On April 20, the Q1 25 CPI data is due, with CBA forecasting Q1 25 trimmed mean CPI at 0.6 per cent/qtr.
“There will still be one more labour market print and Q1 25 wages data ahead of the next Board meeting due 20 May. As will further updates on the global trade war.”
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