Despite previously suggesting the RBA would not want to cut twice in a row, Westpac Chief Economist Luci Ellis now believes the likeliest outcome from the July monetary policy meeting will be another cut.
The RBA ASX rate tracker suggests markets are very confident a cut is coming (89% probability as of 24 June), and Ms Ellis believes Michele Bullock and the rest of the board will decide to "validate" market pricing.
"What we are about to see is an RBA that was planning to cut rates soon anyway deciding it may as well get on with it rather than make a contestable argument for further delay," Ms Ellis, the former RBA Assistant Governor, explained.
On Wednesday the monthly inflation numbers for May were released, which showed price increases of just 2.1% over the year to May - below expectations.
This was enough for Commonwealth Bank economists to officially change their prediction to a July cut - now Westpac has followed suit.
Ms Ellis says she still believes the terminal cash rate will be 2.85%, which would mean another 0.75% worth of cuts assuming the July one comes to fruition.
"The timing will depend on the RBA's post meeting tone," she said.
ANZ hold out for a hold
Three of the big four banks are now officially calling a cut, but ANZ economists continue to hold out, even in light of the positive May inflation.
"We look for the RBA to ease 25 bp in August 2025 and February 2026, which would take the cash rate to 3.35%," ANZ Head of Australian Economics Adam Boyton and Senior Economist Adelaide Timbrell wrote.
"We see such a course as broadly consistent with our read on the domestic economy and reflecting a degree of caution given the still solid labour market and housing income dynamics."
The unemployment rate in May was steady at 4.1% with a slight drop in the number of employed persons, but there will still need to be an increase to hit 4.2% by June, as forecast in the most recent Statement on Monetary Policy.
Waiting until August would also give the RBA the benefit of the June quarterly inflation numbers, more comprehensive than the monthly read and generally considered more significant.
Mr Boyton and Ms Timbrell said ANZ would not rule out a more rapid pace, but interestingly, warned that this could leave the door open for rates to need hiking again later in the cycle.
"If the RBA cuts further than we expect, in the absence of a sharp deterioration in the global economy that spilt over domestically, household income dynamics and our expected activity trend would suggest the risk of policy tightening in late 2026 or early 2027," they wrote.
ANZ is forecasting real household disposable income to be 3.4% higher by the end of June than it was in June 2024.
It also predicts household consumption will be 2.6% higher in June 2026 than it is currently, before growth moderates during the back half of next year.
Picture from Scancode Productions on Unsplash
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