Cash rate cut coming sooner than later, experts predict

Australians are likely to be in for cash rate relief from February, with monetary policy experts predicting a rate cut decision by the Reserve Bank of Australia (RBA) at its upcoming meeting.

Nearly three out of four economists and expert commentators (27 out of 37 individuals), surveyed as part of Finder RBA Cash Rate Survey, forecast a 25-basis point cut by the Reserve at next Tuesday’s meeting.

This would bring the policy rate to 4.10% (down from the current 4.35%) – the RBA’s first rate drop in five years.

Five of the surveyed experts predict a rate cut will more than likely occur in April instead, while the remaining two are counting on a May reduction.

AMP chief economist Shane Oliver is among the high-profile commentators predicting a rate cut.

“Underlying inflation is falling faster than the RBA expected and has been running around target over the last six months, economic activity is a bit weaker than expected and Trump’s trade war poses more risks to Australian growth than inflation,” Oliver said.

Others feel the pressure of an election year, the “precipitous drop” in monthly inflation readings (particularly over the preceding year), weak economic growth, and Trump’s tariff wars will force the RBA’s hand towards a cut.

While cash rate relief will be welcome news for Australian mortgage holders, a number of high-profile economists and financial commentators remain unconvinced the RBA will move – at least not this month.

QUT Adjunct Professor Noel Whittaker believes the Reserve more than likely to hold off on a rate cut.

“The problem is inflation in the building industry remains massive, labour shortages are severe, and the job market is still strong – keeping inflationary pressure on the economy.

“Right now, I don’t see how a rate cut can be justified, even though I have enormous sympathy for mortgage holders doing it tough.

Most experts predicting a cash rate hold remain concerned about a stubbornly above-target core inflation rate (sitting at 3.3% year-over-year (YoY) as at January 2025), as well as excessive sector-based inflation.

Sean Langcake, Oxford Economics Australia, on balance feels the RBA will be compelled to maintain the current policy rate.

“The February decision will be a very close run. Inflation in Q4 was a little weaker than the RBA expected.

“But there are still questions about where underlying inflation will be once the impact of subsidies wash out.

“Services inflation is still looking very strong – a byproduct of the labour market still operating beyond its capacity. The RBA may opt to wait and see how the labour market plays out over the next few months before cutting rates.”

The current cash rate has remained unmoved since November 2023, sitting at 4.35%.