By Devayani Sathyan
BENGALURU (Reuters) -Easing inflation and a slowing economy will prompt the Reserve Bank of Australia to ease policy more than predicted in May, according to a Reuters poll of economists who expect the central bank to deliver a third 25 basis point rate cut on Tuesday.
Financial markets and economists had previously forecast three RBA rate cuts this year but then in May raised their projections to four and now see five, a shift driven by inflation falling faster than expected and a weakening growth outlook.
A strong majority of economists, 31 of 37, predicted the RBA will cut its official cash rate by 25 basis points to 3.60% at the end of its two-day meeting on July 8. Six expected no change, the survey showed.
“The May meeting was notably more dovish in the outlook and that’s going to manifest in cutting in July. I suspect the RBA will keep the option open for further easing and that’s why there will be a follow-up cut in August,” said Philip O’Donaghoe, chief economist for Australia and New Zealand at Deutsche Bank.
“The post-COVID inflation surge is pretty much entirely out of the economy. And so the RBA’s task now is to make sure we can get the growth that will keep the labour market strong…(so) the risk is we see more cuts.”
Over 60% of respondents in the June 30-July 3 Reuters poll, 23 of 36, forecast another quarter-point cut this quarter, taking the cash rate to 3.35%.
While the median forecast pointed to a year-end cash rate of 3.10%, there was no clear consensus among economists on where the rate would end 2025: 16 of 33 projected 3.10%, 15 expected 3.35%, one each saw 3.60% and 2.85%.
Australia’s major banks – ANZ, CBA, NAB and Westpac – were similarly split, underscoring the uncertainty around the final leg of the RBA’s easing cycle.
The economy is forecast to grow 1.6% this year and 2.3% in 2026, a downgrade from 2.0% and 2.4% from the April poll, the poll predicted.
Official data showed the economy expanded just 0.2% in Q1 2025, a slowdown from 0.6% in Q4 2024.
“A large part of the reason why the RBA has now found itself on a rate-cutting path that’s steeper than what it would have thought at the beginning of the year is because…consumption has been softer than the RBA anticipated,” said Luci Ellis, chief economist at Westpac.
Some economists flagged the lack of a trade deal ahead of the July 9 expiry of a 90-day pause on U.S. President Donald Trump’s sweeping tariffs on trading partners announced in April as a downside risk to the economy and RBA rates.
“If some of those global headwinds…feed through into more precautionary saving from households, then that could spur the RBA to deliver a little bit more support,” said Taylor Nugent, senior economist at NAB.
Inflation, which cooled to 2.1% in May from 2.5% at the start of the year, was expected to average 2.6% in 2025 and 2.7% in 2026.
That is within the RBA’s 2-3% target band but near the upper bound.
Despite deeper rate cut expectations, the Australian dollar has gained over 6% so far this year, lifted by broad U.S. dollar weakness, and was forecast to strengthen about 2% over the next six months, a separate Reuters poll found.
(Other stories from the July Reuters global economic poll)
(Reporting by Devayani Sathyan; Polling by Vijayalakshmi Srinivasan; Editing by Hari Kishan, Ross Finley, William Maclean)
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