Falling inflation strengthens case for further cash rate reduction
The Commonwealth Bank of Australia (CBA) now expects the Reserve Bank to lower the cash rate at its next policy meeting in July, following new inflation figures that show a further decline in consumer prices.
Data from the Australian Bureau of Statistics (ABS) revealed the Consumer Price Index rose 2.1% in the year to May, easing from 2.4% in April and March. The figure places inflation at the lower end of the Reserve Bank of Australia’s (RBA) 2–3% target range.
In response, CBA has joined National Australia Bank (NAB) in forecasting a rate cut on July 8. This shift positions them ahead of their major rivals, with Westpac and ANZ still expecting the next move to come in August after the release of the June quarter inflation data.
Belinda Allen, senior economist at Commonwealth Bank of Australia, said the May figures suggest the RBA could bring forward monetary easing.
“We expect the RBA to cut the cash rate in both July and August which would see the cash rate sit at 3.35%,” Allen said. “A combination of a dovish May RBA decision and the flow of data since sees us shift our base case to a rate cut in July.
“The decision to the cut the cash rate in July will still be a close one. We expect there to be a discussion of both leaving the cash rate on hold and cutting by 25 basis points.”
Should CBA’s prediction materialise, it would mark back-to-back cuts from the current 3.85% rate, following earlier reductions in February and May.
The real estate sector has also welcomed the inflation trend. Leanne Pilkington (pictured immediately above), president of the Real Estate Institute of Australia, said the data was in line with RBA expectations and pointed to further easing.
She also highlighted soft economic growth as further justification for monetary support. GDP increased by just 0.2% in the March quarter, down from 0.6% in the previous period and below RBA forecasts.
“Further cuts in interest rates can be expected during 2025 providing additional relief for borrowers,” Pilkington said.
For Nicola Powell (pictured below), chief of research and economics at Domain, another rate cut would be a welcome sign for homeowners and buyers.
“If the RBA moves as expected, it’ll be the third rate cut in this cycle – a much-needed boost for borrowers dealing with mortgage affordability,” Powell said.
She added that a lower cash rate would help increase borrowing capacity and may improve the outlook for first-home buyers. However, she cautioned against expecting a major surge in housing prices, citing soft population growth, better housing supply, and continued affordability barriers.
“Still, momentum is changing,” Powell said. “Less volatility, more confidence. The housing market’s next chapter is starting to take shape.”
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