As anticipation builds ahead of the Reserve Bank of Australia’s (RBA) next interest rate decision on May 20, leading economists are signaling that while a rate cut is still on the table, the pace of monetary easing may be more measured than previously expected.

Economists Taper Expectations for 2025 Cuts

AMP’s chief economist Shane Oliver, a prominent voice in Australian economic circles, has reaffirmed the likelihood of a 25-basis point cut this May. He also expects potential follow-up reductions in August and November, bringing the total to three cuts for 2025—down from earlier forecasts of up to five.

“Markets often overreact,” Oliver noted. “A few weeks ago, there was talk of an emergency meeting and a 50-basis point cut. In hindsight, that was over the top.”

This reassessment reflects not only a moderation in market sentiment but also evolving global and domestic conditions. Notably, fears sparked by former U.S. President Donald Trump’s sweeping tariff proposals—once thought to be a major trigger for aggressive easing—have since eased, especially after partial delays and exclusions for China.

Inflation Still a Key Concern

The caution is being driven in part by Australia’s latest inflation figures. The trimmed mean inflation rate rose 0.7% in the last quarter, slightly above expectations. While not alarmingly high, the figure was just enough to temper aggressive rate-cut expectations.

“The numbers weren’t bad, but weren’t as good as some were hoping,” Oliver explained. “It was only 0.1% higher than expected, but even a small miss can shift sentiment at the margins.”

Commonwealth Bank economist Gareth Aird echoed the caution, noting that while the inflation result aligns broadly with RBA projections, it adds “some risk” to the timing of rate cuts.

What a May Cut Could Mean for Borrowers

If the RBA moves forward with the expected 25-basis point cut, borrowers could see immediate relief. According to Canstar, monthly repayments on a $600,000 mortgage over 25 years could drop by approximately $91.

With all four major banks forecasting a rate cut in May—though divided on whether it will be 25 or 50 basis points—borrowers and investors are preparing for a potential shift in the lending landscape.

A Measured Path Forward

The consensus among economists is that the RBA is unlikely to act aggressively unless new economic shocks emerge. The current outlook suggests a more balanced approach: supporting growth without letting inflation expectations become unanchored.

As Australia navigates the delicate balance between global volatility and domestic resilience, the RBA’s upcoming decision will provide critical insights into its longer-term policy stance.

In a move that signals growing competition and optimism in the mortgage market, two Australian banks—Macquarie Bank and Police Bank—have slashed their home loan interest rates ahead of the Reserve Bank of Australia’s (RBA) highly anticipated May cash rate decision.

Macquarie Bank Cuts Variable Rates for Investors

Macquarie Bank, Australia’s fifth-largest lender, has reduced its variable interest rates for property investors, offering its lowest rate at 5.99% p.a. (6.01% comparison rate) for loans with a loan-to-value ratio (LVR) of up to 60%. This adjustment complements its earlier cuts to fixed rates, demonstrating a broader strategy to stay competitive amid shifting market dynamics.

These rate reductions are a notable sign that Macquarie is positioning itself to attract more investment borrowers at a time when lending growth has shown signs of softening.

Police Bank Drops Fixed Rates Below 5%

Meanwhile, mutual lender Police Bank has introduced dramatic cuts to its fixed home loan rates—bringing some below 5% for the first time in over two years. The most eye-catching offer is a three-year fixed rate of 4.99% p.a. for both owner-occupiers and investors making principal and interest repayments. This rate applies to borrowers with LVRs of up to 95%.

Police Bank also cut its two-year fixed rate to 5.15% p.a., making it one of the most competitive offerings currently available in the fixed-rate segment.

Market Braces for Potential Rate Cuts by RBA

These rate moves come as the market eagerly awaits the RBA’s next monetary policy meeting on May 20, where expectations are building for a potential rate cut. While some analysts forecast a 50 basis point reduction, others believe the central bank may adopt a more cautious 25 basis point cut instead.

With the RBA under pressure to respond to global economic uncertainty and the domestic slowdown in consumer demand, lenders are already adjusting their pricing in anticipation of more accommodative monetary policy.

What This Means for Borrowers

For borrowers, these recent rate cuts are welcome news, potentially reducing monthly repayments and increasing loan affordability—particularly for first-time buyers and refinancers.

However, experts urge caution. While falling rates can create opportunities, borrowers should always consider the full terms and conditions, including fees, comparison rates, and product features.

As the RBA’s May meeting approaches, the mortgage landscape appears to be heating up. Whether you’re in the market to buy, refinance, or invest, now may be a good time to reassess your options and speak with a mortgage advisor.

As global economic conditions remain uncertain, all eyes are on the Reserve Bank of Australia (RBA) with growing expectations of an imminent interest rate cut. Speculation has intensified following fresh economic signals from major global powers and domestic commentary pointing to potential easing measures as early as May.

Global Forces Stir Local Decisions

The latest buzz has been fueled by former U.S. President Donald Trump’s announcement of new tariff policies, which are expected to have ripple effects across the global economy. Australia’s Treasurer, Jim Chalmers, acknowledged the situation, citing concerns about the modest yet tangible impact these tariffs could have on Australia’s economic outlook.

According to Treasury estimates, the new U.S. tariffs could result in a 0.2% dip in GDP growth by the end of next year, while inflation could see an uptick of 0.2 percentage points this year. While these numbers may appear small in isolation, their broader implications for monetary policy are significant.

Market Anticipates a Series of Cuts

Bond markets are currently pricing in as many as four interest rate cuts by the RBA within 2025, with speculation mounting around a possible 50 basis point reduction as early as May. If realized, such a move would mark one of the most aggressive responses by the central bank in recent years.

However, not everyone is convinced of such a bold step. Investment expert Jun Bei Liu weighed in, suggesting that a more measured 25 basis point cut is far more likely, aligning with the RBA’s typical cautious approach.

Australia’s Economic Readiness

Despite the looming challenges, Treasurer Chalmers reassured the public of Australia’s robust position in the global landscape. “We are not immune to global shocks, but we are well-placed to weather them,” he said, underscoring the resilience of the domestic economy.

Australia’s relatively stable labor market, strong export sectors, and ongoing infrastructure investments provide a buffer against international volatility. Yet, policymakers remain vigilant, recognizing that proactive monetary adjustments may be necessary to sustain growth and control inflation.

What This Means for Households and Investors

For Australian households, a rate cut would bring some relief in the form of lower mortgage repayments and potentially increased consumer spending. For investors, however, the scenario paints a mixed picture: while rate cuts can boost equity markets and economic activity, they also signal underlying concerns about future growth.

As the RBA prepares for its next monetary policy meeting, the nation—and indeed the world—will be watching closely. Whether it opts for an aggressive rate cut or a more tempered approach, the decision will have far-reaching implications for Australia’s economic trajectory in 2025 and beyond.