CBA Predicts Immediate Cut in May
The Commonwealth Bank of Australia (CBA) has labelled a May interest rate cut a “done deal”. This follows the bank’s latest economic forecasts showing inflation returning within the Reserve Bank of Australia’s (RBA) target band. CBA senior economist Stephen Wu said the trimmed mean inflation must meet or fall below the forecast for the rate cut to proceed.
“If the trimmed mean CPI is in line with our forecast (or below), then we consider a rate cut in May is a done deal,” Wu stated.
Figure 1: Rate cut forecasted by CBA in May
Inflation Figures Drive Outlook
CBA expects headline inflation to rise by 0.8 per cent in the March quarter. This rise reflects the unwinding of government electricity rebates. The increase would still bring the annual inflation rate down to 2.3 per cent. This places inflation near the bottom of the RBA’s target band of 2 to 3 per cent.
Trimmed mean inflation is forecast to increase by 0.6 per cent for the quarter. This result would put the annual rate at 2.8 per cent, also within the RBA’s target range.
Impact on Mortgage Holders
A 25 basis point cut would bring relief to homeowners. According to Canstar, a borrower with a $600,000 mortgage over 25 years would save $91 each month. CBA expects three cuts this year, occurring in May, August and November. These would reduce the official cash rate from 4.10 per cent to 3.35 per cent by year’s end. The cumulative effect would cut monthly repayments by $268.
Labour Market Remains Steady
CBA’s Gareth Aird noted that the labour market data appeared “vanilla”. The unemployment rate remains at 4.1 per cent. March’s labour force survey showed employment rose by 32,000. This increase fell short of expectations. CBA indicated that employment data would not hinder the RBA from cutting rates if inflation meets forecasts.
RBA Open to Easing in May
Minutes from the RBA’s April meeting described May as an “opportune time” to revisit policy settings. The board will have access to fresh inflation, wages, labour and economic activity data. It will also consider new global trade policy developments.
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Westpac Supports May Cut
Westpac also predicts a 25 basis point cut at the May meeting. The bank expects headline inflation to rise by 0.7 per cent in the March quarter. Trimmed mean inflation is expected to match CBA’s forecast of 0.6 per cent.
Westpac senior economist Michael Gordon said the RBA will likely view the inflation data as aligned with expectations.
“We expect that headline inflation will remain within the target band over the year ahead, albeit on the higher side,” Gordon said. He projects a peak inflation rate of 2.8 per cent in December 2025.
Economist Ryan Wells from Westpac added that labour market slack remains limited. The unemployment rate rose by just 0.01 percentage points in March. Wells noted this is still consistent with a tight labour market.
NAB Sees Bigger Move
NAB predicts a more aggressive stance. It expects the RBA to deliver a 50 basis point cut in May. This forecast previously stemmed from uncertainty created by US tariffs. US President Donald Trump has since paused the tariffs for 90 days. Despite this, NAB’s forecast still includes five cuts through May, July, August, November and February. This path would take the cash rate down to 2.60 per cent.
ANZ Agrees on 25 Basis Points
ANZ has forecast a 25 basis point cut in May. Senior economist Adelaide Trimbrell said the pause on US tariffs reduced the likelihood of a larger cut.
“50 basis points has never been our core. We’ve always thought it was more likely to have 25 basis points,” Trimbrell said.
Forecasts for the Rest of 2025
All four major banks see easing continuing through 2025. CBA, Westpac and ANZ each expect three cuts, ending the year with a cash rate of 3.35 per cent. NAB projects five cuts, ending at 2.60 per cent.
April 30 Inflation Data Will Finalise Decision
All major banks point to the upcoming inflation data due on April 30 as the final piece of the puzzle. The RBA has indicated this data will be critical in its May decision. The board will assess how domestic and global conditions have evolved.
Mortgage Holders Await Relief
Millions of Australian mortgage holders stand to benefit. A rate cut of 25 basis points would bring immediate relief. Three cuts this year would substantially reduce repayment burdens. The RBA’s May meeting will confirm the trajectory.
The Reserve Bank will next meet on May 7.
