The Commonwealth Bank of Australia (CBA) is forecasting that the Reserve Bank of Australia (RBA) will implement another interest rate cut in May 2025. This prediction is based on CBA's latest financial forecasts, which suggest a 0.6% increase in trimmed mean consumer price inflation (CPI) for the March quarter. Such a rise would bring the annual underlying inflation rate to 2.8%, aligning with the RBA's target band.
CBA analysts stated, "If the trimmed mean CPI is in line with our forecast (or below), then we consider a rate cut in May is a done deal." This statement reflects the bank's confidence in the upcoming inflation data, suggesting that if the numbers align with their expectations, a rate cut is almost certain.
In response to the RBA's February 2025 rate cut of 0.25%, CBA reduced its home loan variable interest rates by the same margin, effective February 28, 2025. This move provided some relief to borrowers facing financial challenges. CBA's Group Executive, Retail Banking Services, Angus Sullivan, emphasized the bank's commitment to supporting customers, saying, "We recognize some customers will continue to need support as they manage household budgets."
Economic indicators present a mixed picture. While certain sectors, such as electricity and education, have seen price increases, ongoing discounting in the housing market and holiday travel has helped keep overall inflation in check. CBA's outlook factors in a significant 15.3% quarterly jump in electricity prices as rebates unwind, along with seasonal rises in education and health costs.
Looking ahead, CBA's forecast suggests that if inflation trends continue as predicted, the RBA is likely to implement another rate cut in May 2025. However, RBA Governor Michele Bullock has cautioned about an ongoing “period of uncertainty and adjustment,” indicating that future monetary policy decisions will depend on evolving economic data.
In a related analysis, Commonwealth Bank’s latest financial forecasts predict a 0.6% increase in trimmed mean consumer price inflation (CPI) for the March quarter, a result that would return annual underlying inflation to the Reserve Bank of Australia (RBA)’s target band. The banking major sees annual trimmed mean inflation, which is the RBA’s preferred metric, at 2.8%, while headline CPI is expected to rise 0.8% for the quarter and drop to 2.3% year on year. These forecasts sit slightly below the RBA’s own expectations, which assume a 0.7% quarterly increase in trimmed mean CPI.
In other words, a May interest rate cut is a foregone conclusion. "If the trimmed mean CPI is in line with our forecast (or below) then we consider a rate cut in May is a done deal," said CommBank analysts in a Tuesday note. The RBA held rates in April after cutting in February, although Governor Michele Bullock has warned of an ongoing “period of uncertainty and adjustment” which could influence the hawkish contingent of the central bank.
CommBank’s outlook factors in a significant 15.3% quarterly jump in electricity prices as rebates unwind, along with seasonal rises in education and health costs. Meanwhile, ongoing weakness in new dwelling prices and holiday travel are expected to exert downward pressure on inflation. "Ongoing discounting activity by builders amid weak demand has driven lower consumer prices," analysts noted.
The bank expects rents to have increased by 1.2% in the March quarter, contributing eight basis points to headline inflation. This marks an acceleration from the 0.5% quarterly rise in the previous period, which had been dampened by higher Commonwealth Rent Assistance.
Commonwealth Bank of Australia is predicting that the RBA will slash rates when it next meets in May 2025, declaring it is a "done deal" if one key piece of data comes in as expected. A major bank is forecasting a rate cut at the Reserve Bank of Australia’s May meeting is a “done deal” if inflation comes in as it expects while Aussies eagerly await a second drop this year.
The cash rate finally fell 0.25% in February and was then held during the April meeting as many economists forecast the RBA to drop the cash rate during the next meeting. The central bank is not only expected to lower the cash rate on May 20, 2025, it could drop the rate by 50 basis points after turmoil from Donald Trump’s trade war.
Commonwealth Bank of Australia’s senior economist, Stephen Wu, on Tuesday, April 22, 2025, said the recent labour data from the Australian Bureau of Statistics, which showed the unemployment rate remain near historic lows, pointed towards a cut if upcoming inflation data falls in line with its expectations. Wu stated, "Following the March labour force survey, we think a 25 (basis point) rate cut in May is still more likely than not if the trimmed mean CPI prints in line with the RBA’s forecast."
The central bank is forecasting a quarterly increase in trimmed mean inflation – the middle 70% of price changes – to come in at 0.7%. CommBank is forecasting underlying inflation, which removes volatile items, to fall to 2.3%, near the bottom of the RBA’s 2-3% target band. The major bank also forecasts headline inflation, which includes all price changes in the consumer price index, to rise by 0.8% for the March quarter while trimmed mean inflation will jump 0.6%.
CommBank expects housing inflation to rise 1.6% over the quarter as state government electricity rebates are coming to an end while education prices are expected to soar about 5%. Alongside Australia’s largest bank calling for a rate cut, the remaining three of the big four are also forecasting near-term relief for mortgage holders struggling with loan repayments.
In the middle of Trump’s tariff turmoil, NAB predicted a 0.5% rate cut in May, though the US President has since implemented a 90-day pause for the tariffs. Westpac predicts a cut next month and ANZ expects the RBA to lower the cash rate in May, July, and August.
