‘s biggest bank is now forecasting a July interest rate cut as inflation continues to fall.
The Commonwealth Bank changed its forecast on Wednesday after new data showed inflation falling to just 2.1 per cent in May – putting it on the lower side of the Reserve Bank’s two to three per cent target.
CBA has joined NAB in forecasting relief on July 8 when the RBA next meets.
The Reserve Bank had been expected to wait until August to cut rates again, following the late-July release of June quarter consumer price index data.
But Belinda Allen, a senior economist with the Commonwealth Bank, said the latest inflation data for May now made relief next month likely.
Back-to-back cuts are now expected in July and August to the existing 3.85 per cent cash rate.
These two cuts would see the RBA cash rate fall to a neutral level where monetary policy was no longer designed to slow the economy nor stimulate growth.
‘We expect the RBA to cut the cash rate in both July and August which would see the cash rate sit at 3.35 per cent,’ she said.
‘We think the path is clear for the RBA to move the cash rate swiftly back to a more neutral rate of 3.35 per cent.
‘Maintaining the current restrictive settings for too long raises the risk of inflation undershooting the midpoint.’
Ms Allen said the Reserve Bank’s tone in May, when it last cut rates, had convinced her it was now less concerned about inflation.
‘A combination of a dovish May RBA decision and the flow of data since sees us shift our base case to a rate cut in July,’ she said.
‘The decision to the cut the cash rate in July will still be a close one.
‘We expect there to be a discussion of both leaving the cash rate on hold and cutting by 25 basis points.’
She said Donald Trump’s tariffs were likely to see the Reserve Bank’s monetary policy board focus on slower economic growth instead of what low unemployment could mean for inflation.
‘The case to leave the cash rate on hold would be around diminished trade uncertainty since the heightened May environment, a still tight labour market and wanting to see a full quarterly CPI print,’ she said.
‘We expect though a 25 basis point cut will make the stronger argument.’
Among the Big Four banks, CBA and NAB are now expecting a July rate cut while Westpac and ANZ aren’t expecting more relief until August.
The consumer price index of 2.1 per cent in May was the lowest monthly indicator of headline inflation since October 2024.
Without the big price falls, underlying inflation was still low at 2.4 per cent.
The futures market is expecting the RBA cash rate to fall from 3.85 per cent now to 3.1 per cent by the end of 2025, which would imply three more interest rate cuts.
‘s economy grew by just 1.3 per cent in the year to March, a level well below the long-term average of three per cent.
While RBA rate cuts are good for borrowers, Moody’s Analytics head of n economics Sunny Nguyen said global financial market turmoil and a weaker n dollar could push up wholesale borrowing costs for banks.
‘If the Aussie keeps falling, the funding costs for n banks will rise, leadingd to higher mortgage rates without the RBA changing its cash rate,’ she said.