Gareth Aird, head of Australian economics at CBA, notes that markets have priced a 95% probability of the Reserve Bank of Australia (RBA) cutting the official cash rate by 0.25% at Tuesday’s monetary policy meeting.
“Both the Q1 25 trimmed mean CPI and the Q1 25 wage price index printed right in line with the RBA’s forecasts from the February Statement on Monetary Policy”, Aird notes.
“This means the prices and wages side of the economy in the March quarter have evolved exactly as the RBA anticipated in February”.
“Household consumption, however, looks to be softer over Q1 25 than the RBA forecast in February”.
“The reported monthly swings in employment growth have been big, but the unemployment rate has held steady at 4.1%”.
Official cash rate to end 2025 at 3.35%:
Gareth Aird believes “the proverbial inflation dragon has been slayed”. Even so, its official cash rate forecast is a little less dovish than the latest market pricing.
CBA expects the RBA to “leave the door ajar for a follow-up July rate cut simply by not providing any forward guidance”.
It forecasts an end-of-year cash rate of 3.35%, with the RBA expected to cut the cash rate by 0.25% in May, August, and November.
