By Devayani Sathyan
BENGALURU (Reuters) – The Reserve Bank of Australia will cut its key rate by 25 basis points on Tuesday and twice more this year as core inflation remains within its target range while trade tensions fuel growth concerns, a Reuters poll found.
After it held borrowing costs steady in April there has been a shift in expectations regarding the RBA, from three 25 basis-point cuts before last month’s meeting to four this year amid global trade uncertainties and core inflation cooling to 2.9% in the March quarter.
Recently, the United States and China agreed to a 90-day truce in their trade war.
The Reuters poll, conducted May 12–15, showed near-unanimous expectations for the Reserve Bank of Australia to cut its key rate by 25 basis points to 3.85% at the end of its two-day policy meeting on May 20, with 42 of 43 economists forecasting the move.
NAB was the only major bank to predict a 50 basis-point cut, while ANZ, CBA and Westpac all anticipate a quarter-point reduction.
“Following tariff news at the start of April, we shifted our expectations. We’re expecting the cash rate will go to 3.35% now. That shift was really a rough lesson of a very changing, uncertain global environment where global growth was likely to slow,” said Madeline Dunk, economist at ANZ.
“There are indications some of those tariff announcements are going to be wound back but the big question is how this actually shakes consumer confidence and how businesses are feeling… There is some clear softness in the business environment, which would support a rate cut from the RBA next week.”
In an April pre-meeting poll economists largely expected the cash rate to end this year at 3.60% but now 74%, or 29 of 39, of those who had a long-term view forecast the cash rate falling to 3.35% or lower by the end of the year.
A poll conducted after April’s meeting reflected a similar shift in sentiment.
If realised, that would mark a cumulative 100 basis points of easing by the RBA this year – far less than the expected 250 basis points of rate cuts from the Reserve Bank of New Zealand in the current cycle, its counterpart across the Tasman Sea.
“From our perspective, the economy will remain below trend and that implies further downward pressure on inflation… Growth below trend and inflation below the midpoint means monetary policy needs to be expansionary. And we think that implies another two rate cuts over the course of this year,” said Lynda Bourke, senior economist at QIC.
Australia’s economy will grow 2.0% this year and 2.4% in 2026 while inflation is expected to average around 2.6% this year and next, according to another Reuters poll.
While economists don’t anticipate an aggressive easing cycle, a few warned the RBA could cut further if the labour market weakens given its past caution to protect jobs.
“The labour market is really critical (and) if it turns more negative, then you could see sharper rate cuts than we are factoring in,” Bourke added.
(Other stories from the May Reuters global economic poll)
(Reporting by Devayani Sathyan; Polling by Pranoy Krishna; Editing by Ross Finley and Hugh Lawson)
Comments