Bendigo Bank is forecasting four additional interest rate cuts in Australia, with one expected as early as this month. This prediction follows recent data released by the Reserve Bank of Australia (RBA) indicating that underlying inflation has now returned to its target range.
David Robertson, the chief economist at Bendigo Bank, noted that the RBA is shifting its focus from solely managing inflation to also fostering economic growth and job stability. He pointed out that after three years of grappling with global inflationary pressures, the RBA’s priorities are evolving.
Although the overall inflation rate remained steady at 2.4%, the RBA’s preferred measure of core inflation has decreased from 3.3% to 2.9%, marking the first time it has fallen within the target range since December 2021. This trend signals that a rate cut may be imminent, with discussions surrounding the extent of this reduction.
Robertson expressed confidence that a rate cut is likely on May 20, but he suggested that the magnitude remains uncertain. Bendigo Bank anticipates four cuts total, averaging 25 basis points each quarter, which would bring the interest rate down to approximately 3.1%. Meanwhile, market predictions are leaning towards five cuts, potentially lowering the rate to about 2.8% by the end of the year, indicating a more aggressive easing than previously thought.
While additional cuts could happen rapidly if global economic conditions deteriorate, Robertson believes this scenario is currently unlikely. He noted that a substantial cut of 50 basis points is not on the horizon unless market turmoil, similar to the global financial crisis, emerges. However, a cut around 35 basis points in May could simplify the cash rate’s fractions.
Global markets face significant challenges, including uncertainty stemming from US tariffs and their implications for international trade, particularly between the United States and China. Robertson pointed out that while stock markets are slowly recovering, difficulties lie ahead as tariffs tend to adversely impact the imposing country. The International Monetary Fund (IMF) has revised the US growth forecast downward, expecting an economic growth rate of 1.8% this year, while China’s GDP growth is also expected to decrease.
Australia is feeling the effects of this uncertainty, with the IMF lowering the nation’s growth outlook from 2.1% to 1.6%. Likewise, Bendigo Bank has revised its growth forecast for Australia down from 2.4% to 2% for 2025 due to anticipated lower global growth conditions.
In summary, Bendigo Bank’s predictions, along with the latest inflation figures, suggest an imminent shift in monetary policy as the RBA balances its approach to inflation management with the need to support economic growth and employment amidst a challenging global landscape.