While July hold came as a surprise, tepid consumer confidence should spur RBA into action
Australia’s four major financial institutions – Commonwealth Bank, ANZ, Westpac and NAB – remain optimistic that further interest rate cuts are coming in 2025, despite the surprising decision by the Reserve Bank of Australia to hold at 3.85% last week.
Each of the Big Four had presumed that a 25-basis-point was in the bag. But even though the hold came as a shock, their end-of-year predictions do not appear to have budged.
Westpac has emerged as the most optimistic of the Big Four, forecasting that the cash rate will fall to 2.85% by May 2026.
“We read the tone of the media conference as flagging that the rate cut is still on for August, provided the trimmed mean inflation rate for June quarter does not surprise too much on the upside,” said Westpac’s chief economist Luci Ellis in the aftermath of the hold.
Ellis highlighted that, while underlying inflation is safely inside the 2–3% target range and showing signs of declining further, the RBA’s Monetary Policy Board highlighted the 2.9% year-ended rate for trimmed mean inflation in the March 2025 quarter.
The suggestion by the Board was that trimmed mean inflation – which trims away the most volatile price movement from the consumer price index (CPI) basket – should be guiding policy, not headline inflation, which includes all items in the CPI basket.
The latest predictions are as such:
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CBA: Expects two additional rate cuts in August and November, bringing the cash rate to 3.35%
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Westpac: Expects four further cuts – in August, November, February, and May – bringing the cash rate to 2.85%
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NAB: Expects three more cuts in August, November, and February, bringing the cash rate to 3.1%
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ANZ: Expects two more cuts in August and November, bringing the cash rate to 3.35%
In CBA’s latest Household Spending Insights report, senior economist Belinda Allen said the July hold “surprised the market and us”, but “we expect a rate cut in August and November”.
ANZ’s head of Australian economics Adan Boyton, meanwhile, said he was also surprised by the hold, but “I think we’ll get a rate cut in August and then one in November, which is the final statement of monetary policy meeting for this year”.
Consumer confidence underwhelms
Public pressure is building on the RBA to get a jog on with rate cuts after yesterday’s Westpac Consumer Sentiment Index raised a few red flags.
While sentiment in July ticket slightly higher to 93.1 (from 92.6 in June, Westpac’s head of Australian macro-forecasting Matthew Hassan called it “another ‘false start’”.
Hassan said: “While the mood improved a touch for the month as a whole, responses over the survey week show a clear disappointment following the RBA’s surprise move to leave rates on hold at its July meeting.
“Those surveyed before the decision was announced reported an index read of 95.6
while those surveyed after reported an index read of 92. The reaction checked what would probably have been a solid rise.”
The hold also took “some of the gloss off consumers’ house price expectations”, added Hassan.
House price expectations fell by 2.2% to 162.8, per the Consumer Sentiment Index report, although this decline followed a particularly elevated starting point, as June recorded a twelve-year high. The vast majority of consumers still anticipate house prices will increase over the next 12 months.
