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Hedge Clippings | 16 May 2025 Consensus expectations from a significant majority of economists anticipate a 25 basis point cut next Tuesday when the RBA announces their decision following the new format 2-day board meeting. If the economists are correct - and the market is certainly backing that view - it will bring the cash rate to 3.85%. For example, the CBA is amongst the pack, forecasting a 25 basis point cut, with potential further cuts in August and November, aiming for a year-end rate of 3.35%. Some analysts, like NAB's chief economist Sally Auld, suggest a more aggressive approach, proposing a 50 basis point cut in May, followed by additional reductions throughout the year, and potentially lowering the rate to 2.85% by December. ANZ has reportedly walked back from their previous call that the RBA would "definitely cut", now seemingly having a bet each way by suggesting there's around a 30% chance they'll stay on hold for at least another month. As usual, there are arguments both for and against a move: Inflation at 2.4% (12 months to March) is firmly in the RBA's 2-3% target range, although that number remains skewed by government subsidies on electricity prices, which fell 9.6%. The RBA's preferred trimmed mean measure is a tad higher at 2.7%, but still within the band. More recent CPI figures for April aren't due until the week after the RBA meets, but it would be surprising if it kicked up above 3% to spoil Albo and Jim Chalmers' post election party. Against that, Australia's labour market remains tight, with a notable increase of 89,000 jobs in April and a steady unemployment rate of 4.1%. Such strength could lead to wage pressures, potentially reigniting inflation, and Michele Bullock has previously pointed to this as a risk, preferring to see a number above 4.5%. The RBA has previously cited "uncertainty" as a significant reason for their reluctance to ease further, or earlier, and while the local political outlook now seems stable, uncertainty definitely persists despite an apparent easing of the tariff tit-for-tat between the US and China in particular. However, it is only an easing from the trade-stopping proposed levels of 145% and 125%, down to a US tariff of 30%, and a reciprocal tariff of 10% from China. That level of uncertainty may, or may not, impact the RBA's decision-making process, but it remains a major concern for the US itself, where the FED's Jerome Powell is standing firm against both Trump's threats and insults, and a decision on cutting rates from their current 4.25% to 4.50% level. The market had expected a cut at the FED's June meeting, but this has now been pushed out to July or possibly September. Looking further out, the market is still not convinced US rates will be much below 4% by December, and if Trump's tariffs lead to inflation kicking up (and it seems difficult to imagine why it would not, even at the new lower tariff levels) then maybe Powell's stance will be vindicated. That leads to another dilemma (or effect) on Australia and the RBA. If NAB's forecast of Australian rates of 2.85% by December is correct, and a worst-case scenario of 4% or more in the US, what does that do to the Aussie dollar? Meanwhile, while the chances of a recession might seem slim in Australia, the US economy is heading into uncharted Trump-induced waters. Slowing economic activity and consumer confidence in the US may force Powell to cut, leading to two significantly different policy decisions. In the meantime, next Tuesday afternoon's RBA announcement, due at 2:30 looms large. At 3:30 Michele Bullock will hold her traditional media conference. Hedge Clippings and Australian Fund Monitors have organised a webinar at 4:30 immediately after the Governor finishes her address to discuss the outcome of the meeting and, more importantly, the outlook for both Australia's markets, and the Global economy. We have assembled three expert fund managers to discuss, debate and share their views. Please register below to join the Zoom webinar, which should last between 30 to 45 minutes and will include a Q&A. Our guest panel of fund managers will be:
Each of our expert panel members will bring a different perspective, and we look forward to hearing from them. Registration is required - please click here or below.
News | Insights | Webinar Webinar | Impact of Tuesday's RBA rate decision The Resurgence of Nuclear Energy | 4D Infrastructure The Future of Travel: How AI-powered travel agents are revolutionising the industry | Magellan Asset Management April 2025 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Concentrated Australian Equities Fund Argonaut Natural Resources Fund |
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