Half of Australia’s big four banks are predicting a cut in interest rates when the Reserve Bank next meets following better-than-expected inflation numbers.
Despite predictions of inflation remaining steady, headline inflation for May fell to 2.1 per cent from 2.4 per cent the previous month.
The fall was driven largely by a drop in the cost of fuel as well as rental prices.
Trimmed mean inflation, which removes volatile price movements, also dropped from 2.8 per cent to 2.4 per cent.
The figures have bolstered predictions of a cut when the Reserve Bank hands down its next cash rate decision on July 8.
The Commonwealth Bank has joined with NAB in forecasting the next cut to be in July, while Westpac and ANZ predict a lowering of the cash rate in August.
Commonwealth Bank economist Harry Ottley said the May data had made a rate cut in July all but certain, with both inflation sets being in the Reserve Bank’s target range of between two and three per cent.
“The slowdown in the core inflation gauge prompted investors to ramp-up bets for another interest rate cut from the RBA on July 8 to 94 per cent, from 81 per cent before for the release,” he said.
“Commonwealth Bank Group economists now expect the RBA to deliver further 25 basis point rate cuts in July and August for an end year cash rate of 3.35 per cent.”
A 25 basis point reduction in the cash rate would shave $90 off monthly repayments for a mortgage holder with a $600,000 loan.
Head of Australian economics at Moody’s Analytics Sunny Nguyen said recent concern over oil prices due to instability in the Middle East was unlikely to impact the chances of a rate cut.
“Prices have fallen 6 per cent as the Israel-Iran ceasefire reduced supply disruption risks,” she said.
“We expect the RBA to look through any temporary oil-driven inflation spikes, particularly given the broader disinflationary trend.”
Household wealth figures for the first three months of the year will be released on Thursday.
Growth in household wealth reached its lowest level in more than two years at the end of 2024, driven by back-to-back quarters of falling house prices.
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