A strong majority of economists now anticipate a cut in interest rates by the Reserve Bank of Australia (RBA) at its upcoming meeting. However, recent global developments have introduced some uncertainty, making this outcome less guaranteed than before.
US President Donald Trump’s significant reduction of tariffs on China—from a staggering 145% down to 35%—has sparked a reaction in global markets. Beijing responded by lowering its own tariffs, which helped lift the value of riskier assets like shares. This shift has altered expectations around interest rates.
Following the release of robust labour market data on Thursday, market predictions for rate cuts by the end of the year have softened, moving from four cuts expected earlier in the week to three. This reflects a more cautious outlook despite the tariff easing.
Currently, the cash rate sits at 4.1%, and traders remain almost fully priced in for a 25 basis point reduction on Tuesday. This indicates confidence in an imminent rate cut, though the exact magnitude remains debated.
In a recent survey conducted by comparison website Finder, nearly nine out of ten economists agreed on the likelihood of a rate cut by the RBA. This consensus highlights widespread agreement about the central bank’s next move.
Sean Langcake from Oxford Economics Australia is part of the overwhelming majority among the 41 economists surveyed who expect the cash rate to be reduced. He noted that despite the improved tariff environment, the economy still faces challenges from ongoing “uncertainty shock.”
Mr. Langcake explained, “With upside inflation risks dissipating, the RBA can afford to lend the economy some more support.” This view underscores why a rate cut remains necessary to bolster economic growth amid global uncertainties.
Economists from all four of Australia’s major banks also predict a rate cut. The National Australia Bank (NAB), in particular, continues to foresee a more aggressive move, predicting a 50 basis point cut to turbocharge economic support.
The easing of the trade tariff tensions between the US and China has lifted market sentiment, with visible improvements in infrastructure and shipping activity, such as at Melbourne’s terminals. This pause in the tariff battle has injected optimism into the economy.
Nomura analysts Andrew Ticehurst and David Seif, however, argue that the case for a 50-point “aggressive” cut is weak in light of the recent detente between the two global powers. They expect the RBA to opt for a 25 basis point cut instead.
Their analysis stated, “We expect the RBA to deliver a 25 basis point rate cut, reflecting both further welcome progress in returning core inflation back towards target and the continuing highly uncertain global backdrop.” This captures the balancing act the RBA faces.
Alongside the expected rate decision, the central bank will also update its quarterly economic forecasts on Tuesday. This will provide further insight into the RBA’s economic outlook amid mixed global signals.
Tuesday also marks the day the Victorian government will release its budget. Ratings agency S&P Global has warned that Victoria, the nation’s most indebted state, must rein in its spending to avoid further downgrades of its AA credit rating.
Meanwhile, buoyed by the tariff reprieve, US stock markets continued their rally, marking their fifth consecutive day of gains by week’s end. Australian shares also surged, hitting a three-month high after eight straight sessions of growth.
This overall positive market momentum reflects the influence of easing trade tensions and growing expectations for supportive monetary policy in Australia. The combination of these factors shapes the evolving landscape for the RBA’s interest rate decision.
