No cash rate change in June, but ANZ tips two cuts in 2027
- There is virtually no expectation of a change to the Reserve Bank cash rate next week
- Markets are pricing in a 0% chance of the cash rate moving in June
- Most big bank economists are saying there will be no more cash rate increases in 2026, except for Westpac
Markets have held firm on their 0% chance of a June cash rate change for well over a month.
It lines up with the expectations of economists and punters who'd been ruling out any move in June almost as soon as the cash rate climbed to 4.35% at the Reserve Bank's May meeting.
Even the most hawkish of the big banks, Westpac, which is still backing August and September cash rate increases, is ruling out any change in June.
Now, ANZ economists have updated their outlook, predicting the cash rate will remain at its current level for an extended period until two cash rate cuts in the second half of 2027.
Odds firm on no more cash rate increases for 2026
This is roughly in line with NAB's updated forecast this week, predicting the cash rate will remain on hold for the rest of 2026 and scrapping its earlier position of an increase in August.
NAB economists said they had less conviction on the timing of future cuts, but brought forward the possible start of the easing cycle from the second half of 2027 to the second quarter.
NAB is also forecasting one more rate cut than ANZ, predicting the cash rate will be back to 3.60% by the end of 2027.
That's where it was at the start of 2026 before the current upcycle of three cash rate hikes kicked off in February.
ANZ, NAB, Commonwealth Bank, and HSBC all agree there will not be another cash rate hike in 2026.
Economy slowing
Economists widely agree that as well as this year's three cash rate hikes, the economy has also been hit by the ongoing conflict in the Middle East and the repercussions of tax policy changes in last month's federal budget.
Since the curbs to negative gearing and capital gains tax benefits were announced, property markets have slowed around the country with auction clearance rates dropping below 50%.
The latest Westpac-Melbourne Institute Consumer Sentiment Index, released this week, recorded one of the weakest consumer outlooks over the past 50 years.
Inflation still the enemy
But despite the gloomy outlook, Westpac economists reminded the market the RBA's number one enemy - inflation - is still a concern.
On Friday afternoon, Westpac lowered the bank's inflation forecasts, based on a lower peak for oil and fuel prices.
Nonetheless, chief economist Luci Ellis said Westpac was still expecting to see "significant pass-through" from higher fuel costs to other prices, stoking inflationary pressure.
As well, she said the larger-than-expected increase in award wages was expected to add to some market services components of the Consumer Price Index (CPI), where labour costs are key and many workers are on awards.
Dr Ellis said the Reserve Bank would be "surprised on the upside" on underlying inflation and, therefore, Westpac was retaining its view of two further cash rate hikes in August and September.
"This is consistent with the RBA's priority to get inflation down," Dr Ellis said.
"The MPB [RBA Monetary Policy Board] will regard soft outcomes for the consumer and housing sectors as being a necessary part of the transmission of monetary policy."
Headline inflation was 4.2% in April, down from 4.6% the previous month, thanks to federal government cuts in fuel excise.
Underlying inflation rose slightly to 3.4%, up from 3.3%, well above the RBA's midpoint target of 2.5%.
The RBA's Monetary Policy Board meets on Monday 15 June for a two day meeting with the cash rate decision to be announced on Tuesday afternoon at 2:30 pm (AEST).
Savings.com.au will be providing live coverage.
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