With less than a fortnight to go until the July decision, another 0.25% cut to the cash rate looks increasingly likely.

NAB economists have maintained this is the likeliest outcome since the May cut, and after Wednesday's "benign" monthly inflation data, Commonwealth Bank has also updated its official prediction to a 25 bps cut.

"A benign monthly CPI print in May and a steady labour market allows the RBA to move the cash rate back to neutral at a relatively swift pace," senior economist Belinda Allen said.

"We expect there to be a discussion of both leaving the cash rate on hold and cutting by 25 bp...we expect a cut will make the stronger argument."

This would bring the cash rate down to 3.60%, - a subsequent cut of the same size (which CommBank is also now predicting for April) would bring rates down to 3.35%.

The RBA doesn't specify exactly what it would consider to be a neutral cash rate that neither loosens nor tightens the economy, but many estimates have 3.35% in or near neutral territory.

Read more: Inflation falls to 2.1% in May

ANZ/Westpac still on hold

The other two major banks meanwhile continue to officially predict the RBA will decide to keep rates steady at 3.85% in July.

ANZ economist Adelaide Timbrell acknowledged the May CPI data, which showed prices rose just 2.1% from May '24 to '25, was softer than forecast, but for now ANZ has not announced any deviation from its official position that a hold is the likeliest outcome on 8 July.

The monthly CPI indicator is generally not considered as consequential to monetary policy as the more comprehensive quarterly indicator, although Ms Timbrell did say the May numbers suggest "a touch of downside risk" to ANZ's Q2 inflation forecast.

"We expect a soft 0.8% quarterly result for Q2 headline, with today's release pointing to downside risk to our 0.7% quarterly trimmed mean forecast," she said.

"The monthly data suggests a touch of downside risk to our forecast for the Q2 CPI," Ms Timbrell said.

Crucially however, the Q2 figures will be released on 29 July, long after the July decision, likely part of why Westpac Chief Economist Luci Ellis (former Assistant RBA Governor) also expects a hold in July.

"The data flow [before] the next meeting [isn't] likely to shift the dial on the near term outlook," Ms Ellis said last week.

"The Board described itself as having a preference to move cautiously and predictably.

"This is code for not wanting to do back-to-back cuts."

Markets are clearly backing CBA and NAB - as of 24 June, trading activity suggests there is an 89% chance of a 0.25% cut in July.

Picture from Commonwealth Bank

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