A major bank is forecasting a rate cut at the Reserve Bank of Australia’s May meeting is a “done deal” if inflation comes in as it expects while Aussies eagerly await a second drop this year.
The cash rate finally fell 0.25 per cent in February and was then held during the April meeting as many economists forecast the RBA to drop the cash rate during the next meeting.
The central bank is not only expected to lower the cash rate on May 20, it could drop the rate by 50 basis points after turmoil from Donald Trump’s trade war.
Commonwealth Bank of Australia’s senior economist Stephen Wu on Tuesday said the recent labour data from the Australian Bureau of Statistics, which showed the unemployment rate remain near historic lows, pointed towards a cut if upcoming inflation data falls in line with its expectations.
“Following the March labour force survey, we think a 25 (basis point) rate cut in May is still more likely than not if the trimmed mean CPI prints in line with the RBA’s forecast,” Mr Wu said in a CBA forecast.
“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.”
The central bank is forecasting a quarterly increase in trimmed mean inflation – the middle 70 per cent of price changes – to come in at 0.7 per cent.
CommBank is forecasting underlying inflation, which removes volatile items, to fall to 2.3 per cent, near the bottom of the RBA’s 2-3 per cent target band.
The major bank also forecasts headline inflation, which includes all price changes in the consumer price index, to rise by 0.8 per cent for the March quarter while trimmed mean inflation will jump 0.6 per cent.
CommBank expects housing inflation to rise 1.6 per cent over the quarter as state government electricity rebates are coming to an end while education prices are expected to soar about five per cent.
Alongside Australia’s largest bank calling for a rate cut, the remaining three of the big four are also forecasting near term relief for mortgage holders struggling with loan repayments.
In the middle of Trump’s tariff turmoil, NAB predicted a 0.5 per cent rate cut in May, though the US President has since implemented a 90-day pause for the tariffs.
Westpac predicts a cut next month and ANZ expects the RBA to lower the cash rate in May, July and August.
