Why Aussies could be getting a bigger rate cut that forecast - but it's not necessarily good news
A top economist has revealed interest rates could be slashed even more than forecast due to Donald Trump's tariffs.
The futures market now sees the Reserve Bank slashing the cash rate to 3.1 per cent by November.
This would imply three more 25 basis point rate cuts on top of this month's relief, that took the cash rate down to 3.85 per cent for the first time since June 2023.
But AMP chief economist Shane OIiver said there was an outside chance of interest rates falling even lower to 2.85 per cent by early 2026.
This scenario would see the Reserve Bank cut rates in August, November and February, on top of a possible cut at its next meeting in July to stop unemployment from rising.
Dr Oliver told Daily Mail Australia Donald Trump 's tariffs had hit Australia's biggest exports and discouraged businesses from hiring new staff.
'Tariffs mean less trade globally which could mean lower growth globally, particularly for countries like China - that could mean less demand for our exports and lower commodity prices,' he said.
'It's a hit to exports, it's a hit to national income, because of lower prices for iron ore and gas and coal.
'There's also an impact on confidence: some businesses being less likely to invest and also potentially consumer confidence; when people hear about this threat to growth from the tariffs, they're probably a bit less inclined to spend.'
Reserve Bank Governor Michele Bullock last week revealed her board had considered a bigger 50 basis point rate cut.
'If they're thinking about a 50-point cut, then they must be a bit worried about the growth outlook - that just highlights that there is a serious issue here,' Dr Oliver said.
'That's a factor that made me think that they could go as early as July.'
Dr Oliver said this consideration made a July 8 rate cut more likely, without the RBA waiting for June quarter inflation data.
But he said a bigger 50 basis point rate cut, for the first time since May 2012, would only occur if Trump announced a new set of tariffs that sparked another share market plunge.
'I think to get 50, you'd probably have to see share markets plunge back to where they were in April, the lows - Donald Trump ramps up the trade pressure again,' he said.
A 2.85 per cent RBA cash rate by early 2026, for the first time since December 2022, would be marginally above the Reserve Bank's 2.8 per cent neutral level, where monetary policy is neither trying to crush inflation nor stimulate more spending in the economy.
Should the RBA cuts rates to 2.85 per cent, a borrower with an average, $660,000 mortgage would see their annual mortgage repayments fall by $6,252, as variable home loan rates fell under five per cent.
Monthly repayments would fall from $4,060 now to $3,539.
The Commonwealth Bank, ANZ and NAB are passing on the RBA's latest rate cut on May 30.
Trump is now threatening new 50 per cent tariffs on the EU and wants Apple iPhone production to shift from China to the United States.
Dr Oliver predicted this would see the price of an iPhone 16 more than double from $US1,000 to $US2,500 - or $A1,543 to $3,859.
Underlying and headline inflation are both within the RBA's two to three per cent target and another reading showing inflation within the band would give the RBA leeway to cut rates.
Australia's economic growth pace of 1.3 per cent is less than half the 20th century average of 3 per cent.
But unemployment is still low at 4.1 per cent without causing a spike in wages.
'If you get sub-par growth on the back of Trump's tariff war, then that could push unemployment beyond the level consistent with full employment,' he said.
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