The Reserve Bank of Australia (RBA) is widely expected to cut its key interest rate by 25 basis points at its May 20 meeting, marking the start of a more accommodative monetary policy stance amid global trade uncertainty and a weakening domestic outlook.
A Reuters poll conducted from May 12–15 showed near-unanimous expectations for a rate cut to 3.85%, with 42 out of 43 economists predicting the move. This marks a significant shift in sentiment from earlier this year, as inflation data and trade tensions continue to shape the RBA’s path forward.
Core Inflation and Trade Risks Drive Policy Shift
Australia’s core inflation cooled to 2.9% in Q1, placing it within the RBA’s target range of 2–3%. At the same time, global trade tensions—despite a temporary U.S.-China 90-day trade truce—have stoked fears of a global slowdown.
Madeline Dunk, economist at ANZ, commented, “We’re expecting the cash rate will go to 3.35% now… it’s a response to a very changing, uncertain global environment.”
Previously, the market had priced in three cuts in 2025, but expectations have now increased to four, including two more after the upcoming May decision.
Diverging Views but Easing Trend Persists
While most major banks, including ANZ, Westpac, and CBA, foresee a 25 bp cut, NAB stands out with a more aggressive call, expecting a 50 basis-point reduction. The shift in expectations reflects concerns about softness in the business environment and fragile consumer sentiment.
According to Lynda Bourke, senior economist at QIC, “The economy will remain below trend… That implies downward pressure on inflation and a need for further easing.”
A majority (74%) of economists polled now forecast the cash rate to end the year at or below 3.35%, down from the 3.60% forecast in April.
Comparison with RBNZ and Regional Policy Divergence
If realized, the RBA’s projected 100 basis points of easing in 2025 would be modest compared to the Reserve Bank of New Zealand, which is expected to slash rates by up to 250 basis points this cycle.
This divergence underlines Australia’s relatively stable inflation and less urgent need for aggressive monetary easing, although some economists warn that deterioration in the labor market could prompt sharper rate cuts.
Outlook for Australia’s Economy
According to the same Reuters poll:
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GDP Growth Forecasts:
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2.0% in 2025
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2.4% in 2026
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Inflation Forecasts:
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2.6% average for both 2025 and 2026
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The Australian dollar has remained resilient, rising slightly alongside the New Zealand dollar, supported by a weaker U.S. dollar amid Fed rate cut bets and global policy uncertainty.
