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As revealed in the Reserve Bank’s minutes for May’s monetary policy meeting, market pricing implied a total of three 25-bp cuts in 2025.
With the central bank already implementing a 0.25 per cent decrease in February and another in May, we could be witnessing just one more cut this year.
Currently, 78 per cent of respondents to the ASX Rate Tracker predict a further 25-bp cut at the meeting on 8 July.
Adam Boyton, ANZ’s head of economics, responded to the minutes and said he doesn’t see anything in the minutes that implies the board won’t hold in July.
ANZ still anticipate a 25-bp cut in August 2025 and February 2026, to a total of 3.35 per cent.
Meanwhile, NAB is penning a 50-bp cut in September and a 25-bp cut in December, to a total of 3.10 per cent, followed by holds throughout 2026.
Westpac is expecting two further 25-bp cuts in August and November, bringing the cash rate to 3.35 per cent.
CBA predicts a cut each quarter, taking the cash rate to 3.35 per cent by the end of the year.
While the RBA is hinting at the potential of just one more cut, the majors are predicting two more.
The board floated the idea of a 50-bp cut at the May meeting. However, if a 0.50 per cent reduction was implemented, this would not result in a lower rate – it would simply reach the desired target faster.
“Members noted that a reduction in the cash rate could be warranted on the basis of either domestic or global factors, and that the combination of these might therefore warrant a 50 basis point reduction at this meeting,” said the RBA.
“Members noted that it would be important that a larger reduction at this meeting should not be taken as implying a view that the cash rate path should be lower over the entire forecast period, merely that it reaches the same level sooner to provide greater insurance against more adverse scenarios.”
All in all, there were three main reasons behind the cut:
- Underlying inflation reaching the 2–3 per cent target band.
- Little evidence of the global economy impacting Australia.
- Monetary policy was judged not to be very restrictive at its current level.
As every discussion surrounding the global economy has gone in 2025, uncertainty was recognised as a major influence in the board’s decision.
Global trade is continuing to have an impact. However, according to the RBA, Australia has not yet shown signs of being negatively impacted by these challenges.
Despite this, there were a number of scenarios accounted for in the monetary policy decision.
Escalation in tariffs was an option that was weighed up, which would likely cause a “sharp slowing” in Australia’s GDP growth.
Other scenarios discussed the possibility of an easing in trade conflict. This would reduce uncertainty but could also result in growth in output and higher inflation.
The 25-bp cut was decided to be the better option, with the board opting for cautiousness. However, members floated the idea of a hold.
“Having weighed up these alternative arguments, members decided that the case to lower the cash rate target by 25 basis points at this meeting was the stronger one. They agreed that developments in the domestic economy on their own justified a reduction in the cash rate target and that the case for that action was strengthened by developments in global trade policy,” said the RBA.
“However, members were not persuaded that the combination of these was sufficient to warrant a 50 basis point reduction at this meeting. Members noted the absence of signs in the Australian data to date that global trade policy uncertainty was having a significant negative impact on the economy, and that some plausible adverse scenarios could see upward pressure on inflation.”
The next monetary policy meeting will take place on 7–8 July, with the decision handed down on 8 July.
[Related: RBA cash rate reduced to 3.85%]
