Mega cash rate cut on the horizon as inflation woes wash away

Aussies could be in for a major cash rate cut later this month with confirmation today that trimmed mean inflation is at its lowest level by quarterly reading in more than three years.

March Consumer Price Index quarterly data published by the Australian Bureau of Statistics (ABS) today shows trimmed mean inflation is finally back within the Reserve Bank of Australia’s (RBA) target range for the first time since December 2021.

Trimmed mean inflation did return to within the bank’s target in February following the first cash rate cut for the country in more than four years, though quarterly data is held in higher regard by the RBA for its decision making.

This first quarterly reading within the 2-3% target range is a major milestone for the Australian economy in its recovery from more than two years of challenging volatility.

ABS acting head of price statistics Leigh Berrington confirmed the CPI saw a slightly higher rise than the last few months at 0.9% in March, though annual figures remain stable.

“Annual inflation to the March 2025 quarter of 2.4% was unchanged from the December 2024 quarter,” she said.

Will we see a double rate cut?

Today’s CPI reading is critical for mortgage holders. At the start of this year, homeowners could only but dream of a small cut to the cash rate.

On the back of continuous falls in both headline and core inflation, however, talk of a “double” rate cut of 50 basis points next month should continue to increase.

REA Group executive manager of economics Angus Moore said the RBA would be feeling reassured on the back of underlying inflation landing as expected.

“This will give them confidence that inflation is sustainable moving back to target,” he added. “It will give them confidence they can continue cutting rates further this year.”

Mr Moore confirmed a cash rate cut this month is now “widely expected” though the size of it remains under debate.

Treasurer Jim Chalmers was the first to set rumors of a 50 basis point (bp) cut swirling when he addressed media earlier this month amid stock exchange chaos for Australia following the introduction of a 10% baseline tariff on imports into the US.

Campaigning in the run up to this week’s federal election, Mr Chalmers said Australia was “better prepared and better placed than any other advanced economy” when it comes to geopolitical tension.

Markets are pricing in a 62% chance of a decrease in the cash rate to 3.60% as of yesterday.

While this looks favorable, the Australian Stock Exchange RBA rate indicator put expectation of a double cut as high as 79% in mid-April.

Banks had already begun to respond favorably ahead of today, with 18 banks having cut at least one fixed home loan rate in the past month.

More are now expected to follow on the back of the latest inflation figures.

Home prices back on the rise

Despite positive news on the trimmed mean, the impact housing prices always have on inflation stability remains a concern for the RBA board when it comes to making its cash rate decisions.

Supply issues, delays and concerns in the construction industry and slow progress toward meeting the National Housing Accord have left many prospective buyers in the lurch and further exacerbated pricing levels.

Findings from the March PropTrack Home Price Index show prices are continuing to climb, with the average home in Australia currently costing $799,000 to buy – a tough pill to swallow for prospective homeowners hoping to enter the market.

If interest rates fall in May however, REA Group senior economist Anne Flaherty says the rate of growth could pick up as borrowing capacities increase and mortgage repayments decline.

“Whichever party is elected, the combination of increased first home buyer incentives, lower interest rates, and supply side challenges are expected to contribute to even higher property prices in 2025.”

The RBA board will make its next cash rate decision on 20 May.

This article first appeared on Mortgage Choice and has been republished with permission.

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