Australian households tipped to get rate relief after May RBA meeting

Westpac has told mortgage holders to “lock in” a May rate cut as the Reserve Bank of Australia changes its approach to interest rates. According to the big four bank, mortgage holders will get a 0.25 per cent interest rate cut in May to 3.85 per cent, but there is an outsized chance of a larger rate cut. Westpac chief economist Luci Ellis said the RBA’s previous policy of being data driven has changed, with the central bank looking to protect Australia’s economic growth. “You can lock in a 25bp cut in May, even if the Q1 inflation data is a shade disappointing,” she said. “Holding rates steady in the face of the global turmoil and softer momentum in the labour market – for the sake of 0.2 ppts on inflation – would be very hard to explain.” Ms Ellis forecasted two more rate cuts in August and November as well as the “outside chance” of a larger rate cut in May. “We do not regard an inter-meeting cut or a 50bp cut as plausible, contrary to some of the more breathless commentary,” Ms Ellis said. “If the Board were to do something other than cut by 25 bps in May, it might consider a 35bp move to 3.75 per cent, and round quarter-point levels of the cash rate.” NED-9108-Monthly-Inflation-Indicator CBA has also labelled a May rate cut a “done deal”, although this is based on Australia’s all important trimmed mean inflation rate, which the RBA uses when making rate decsions to increase by 0.6 per cent for the quarter to come in at 2.8 per cent for the year. Ms Ellis said the RBA will shift from a still-tight labour market and domestic inflation pressures to looking to spur on Australia’s economy which could be hampered by the geopolitical fallout between the US and China. “Now, however, uncertainty has escalated to a whole new level and the risks have completely flipped. Even though we do not expect the US administration to implement tariffs at the rates originally announced, some damage has already been done. “Global growth – and especially US growth – will be slower; the response of China will be disinflationary for the world outside the US; and uncertainty is likely to delay decisions on some investment projects.” NED-9175-Australia's GDP In a tit for tat escalation between the two largest economies, the US has placed a 145 per cent import tariff on China, which was met with a 125 per cent tariff on American goods. While there is little clarification on any current deals between the two nations, there have been some softer comments coming from the White House. US treasury secretary Scott Bessent said “there is a path” to an agreement over tariffs. “I had interaction with my Chinese counterparts, but it was more on the traditional things like financial stability, global economic early warnings,” Bessent told the US ABC News’s This Week on Sunday. But conceded “I don’t know if President Trump has spoken with President Xi.” AMP chief economist Shane Oliver agrees, telling NewsWire the RBA needed to move on protecting Australia’s economic growth. “We’ve had three years when the inflation numbers have dominated, but now we have moved onto the trade war between the US and China which seems to be dominating,” Dr Oliver said. He pointed to the International Monetary Fund (IMF) forecasts indicating a $13bn slowdown for the Aussie economy on the back of Donald Trump’s trade war. “The IMF is playing catch up to what many economists, including ourselves were thinking anyway,” Dr Oliver said. “But it sort of confirms there are downside risks to growth here in Australia and ultimately, I think that will dominate any concerns about inflation because normally lower economic growth leads to lower inflation anyway.”