"We're pretty much of the view here that the main cut is locked in," Illiana Jain, an economist at Westpac Group, told Australian Broker.
The major is expecting to cut the official cash rate (OCR) by 25 basis points to 3.85%, down from 4.10%, on Tuesday.
"The data we've seen so far confirms that it is time to start easing rates," Jain explained. "We've got inflation on the right trajectory, on the way down, and it's really pointing towards that easing coming soon. And in terms of the labor market numbers, wages rose .9% during the quarter. That was a little bit stronger than Westpac's forecast. And the annual rate did increase a little bit from 3.2% to 3.4%. But we are of the thinking that a lot of those upside pressures to wage growth have started to subside. So when that case of broad-based wage increases due to an incredibly tight labor market isn't there anymore, we feel a little bit more comfortable around easing rates."
This is good news for mortgage holders, would-be buyers and investors alike, who will enjoy the benefits of larger borrowing capacities and lower monthly payments. It also creates a fresh wave of opportunities for brokers, many of whom have reported increased inquiries since February's rate cut.
But market participants were disappointed when the RBA decided to hold rates at 4.10% during its April meeting. Since then, however, both inflationary pressures and employment figures have started to move. In April, the nation's mean inflation rate fell to a three-year low, and within the RBA's target inflation range.
Then the Australian Bureau of Statistics (ABS) revealed, earlier this month, that Australia's unemployment levels held steady in April at 4.10%, indicating what could be the first signs of an easing labor market.
Australia's unemployment rate has been consistent within a 3.9% to 4.1% range for the last 16 months. Some industry players are anticipating unemployment will rise throughout 2025. CoreLogic has predicted the rate will increase to 4.5%, while National Australia Bank (NAB) has forecasted unemployment will reach as much as 4.4%.
"I know there are some commentators out there that are expecting that 50 basis point cut. That's not us," Jain said. "We see risk to that as fairly small. The RBA is going to move slowly and virtually, given that there are a lot of risks, especially around tariffs, and what that means for inflationary growth in the country as well. So having that 25 basis point first, and then [the RBA] moves on to something stronger later on, if needed, is our view."
Global economies around the world were on edge in early April when US President Donald Trump unveiled a sweeping round of tariffs — dubbed the Liberation Day tariffs — which tacked on a blanket 10% import levy to all countries globally, including Australia. While the tariffs were primarily aimed at China, news of the added taxes sent markets around the world plummeting, while simultaneously causing recessionary fears to surge. The tariffs also added pressure to the RBA to move quick with expected rate cuts. But a truce in May between the two superpowers led some economists to rethink their forecasts.
"If you kind of think about what other central banks around the world are doing, we're seeing there's a little bit more caution in terms of moving, from the [US] Fed in particular," Jain said. "And so that's really what the tone will be. This is the first cut, but they will take a cautious approach to easing policy ahead."
