RBA poised to cut rates today, economists say

Following a benign May inflation result and softer-than-expected March quarterly GDP growth, banks and economists have predicted that the Reserve Bank will cut interest rates to 3.60 at its meeting today (8 July).

AMP economist Shane Oliver said that while a July rate cut was not guaranteed, it would be “both appropriate and likely,” given recent economic data flows.

“At its May meeting the RBA signalled less concern about inflation which it saw as being at target and more concern about the growth outlook,” Oliver wrote in an economic update.

“Since then we have seen monthly trimmed mean inflation drop further to 2.4%yoy, which is in the bottom half of the RBA’s target range, business surveys point to a further easing in inflationary pressures, March quarter GDP growth come in weaker than expected with subsequent monthly economic data also looking soft and Trump’s trade war continue to threaten the growth outlook all of which point to another cut.”

With core inflation sitting comfortably at the midpoint of the RBA’s 2–3 per cent target band, the central bank’s focus has shifted towards keeping Australia’s economic growth intact amidst rising global economic threats ranging from tariffs to war.

RSM economist Devika Shivadekar said the tame inflation result in May had left the door “wide open” for a July rate cut, although the RBA may prefer to hold fire until quarterly CPI figures come out on 30 July.

“Today’s data certainly reinforces the case for the RBA to consider easing in coming months with inflation now within the RBA’s target band and underlying momentum easing,” Shivadekar said regarding the May inflation data.

All four major banks also predicted that the RBA would cut interest rates by 25 basis points on Tuesday.

“A softer Q1 25 GDP print, weak consumer and business sentiment surveys and a benign May monthly CPI suggest a rate cut in July is needed,” Commonwealth Bank economists wrote last Friday.

Markets are almost certain that the RBA will cut interest rates on Tuesday, pricing in a 97 per cent chance of a cut to 3.60, the ASX RBA rate tracker indicated last Friday.

ABS household spending data released on Friday showed the largest jump in spending since January, rising 0.9 per cent month-on-month.

The household spending boost could bolster the case to keep the cash rate constant. However, ongoing softness in consumer spending and payroll data has tipped the balance of probability in favour of a July rate cut, Ben Thompson, chief executive of Employment Hero, said.

“Inflation is coming down, wages are growing year on year (5%), and consumer sentiment is on the up - but these headlines don’t tell the full story. Employment Hero’s payroll insights show average paychecks dipped 1.2% from April to May,” Thompson said.

“The RBA has more to weigh ahead of its July 8 decision - but considering retail data came out softer than expected and CPI is still within target range, it’s still looking positive for businesses and households hoping for another cut.”