Odds shorten on 50-basis point RBA rate cut at next meeting

AS Treasurer Jim Chalmers calls a meeting of the Reserve Bank and CEOs of the big banks, analysts unite on the view of a bumper rate cut.

While economists are ruling out an Australian recession, they do see the prospect of lower growth and higher unemployment as a result of US President Donald Trump’s tariffs.

And this has raised expectations of an outsized RBA cut among multiple analysts.

Deutsche Bank became the first major bank to tip Australia’s central bank to lower rates by half a percentage point in May.

Australia is relatively well-positioned to weather the direct impact of US tariffs, but is vulnerable to a slowdown in key trading partners in Asia, especially China, according to chief economist Phil O’Donaghoe.

“An aggressive RBA response is appropriate, and consistent with precedent,” he said.

Ray White chief economist Nerida Conisbee also thinks a bumper rate cut is likely.

“Markets anticipate an almost certain 0.50 per cent cut at the next RBA meeting on May 20,” she said.

“Such reductions would benefit mortgage holders significantly and will almost certainly direct more money into the housing market, supporting both housing supply and price growth.”

CoreLogic head of research Tim Lawless pointed out how housing prospered during three recent market upheavals – and hinted at near future boom.

“Housing markets have navigated previous periods of economic shock quite well,” he said.

“CoreLogic Australia data shows the trend in home values hardly missed a beat after the Black Monday share market crash in Oct 87.

“Through the Global Financial Crisis housing values bounced back solidly after an initial drop. Then there is the more recent example of the housing boom through a global pandemic.

“Now we have financial markets suddenly expecting a 50-basis point cut to the cash rate in May and a cash rate below 3.0% by year’s end.”

Several prominent economists – including Greg Jericho and Stephen Koukoulas – as well as Greens senator Nick McKim are calling for the RBA to use its powers to convene an emergency meeting and cut rates immediately.

“People are hurting already, and every week of delay increases the risk of a recession which will hurt Australians even more,” Senator McKim said.

Under the Reserve Bank Act, the chair of the Monetary Policy Board – which is the central bank’s governor Michele Bullock – may convene a meeting at any time.

Asked if Ms Bullock was considering calling an early rates meeting, an RBA spokesperson said the bank was watching developments closely and continued to prepare for the May 19-20 meeting.

Westpac suggested slowing inflation would prompt the RBA Board to deliver a further 25bp rate cut at its May meeting.