Will Australians get an interest rate cut this week? Everything mortgage holders need to know
A clear majority of economists believe the Reserve Bank of Australia will cut interest rates at its next meeting, but developments abroad mean it's no longer a sure thing.
US President Donald Trump recently slashed tariffs on China to 35 per cent from a whopping 145 per cent, prompting Beijing to lower its own tariff wall and triggering a rebound in values for riskier assets such as shares.
Following strong labour market data released on Thursday, the market now predicts three rate cuts by year's end, down from four priced in at the start of the week.
But traders are still nearly fully priced in for a 25 basis point cut to the cash rate, which sits at 4.1 per cent, on Tuesday.
Almost nine in 10 economists agreed in a survey by comparison website Finder.
Oxford Economics Australia's Sean Langcake is among the vast majority of the 41 economists surveyed who predict a cash rate reduction.
Despite better news on the tariff front, the economy would still be negatively impacted by the 'uncertainty shock', he said.
'With upside inflation risks dissipating, the RBA can afford to lend the economy some more support,' Mr Langcake added.
Economists at all four big banks also expect a cut, with NAB still holding onto its prediction of a turbocharged 50 basis point cut.
Nomura analysts Andrew Ticehurst and David Seif said the case for an 'aggressive' 50-point cut was relatively weak, given the detente in the Sino-American trade war.
'We expect the RBA to deliver a 25 basis point rate cut, reflecting both further welcome progress in returning core inflation back towards target and the continuing highly uncertain global backdrop,' the pair said.
The central bank will also update its quarterly economic predictions on Tuesday in an otherwise quiet week on the data front.
The Victorian government will unveil its budget on the same day, with ratings agency S&P Global warning the nation's most indebted state to rein in spending or risk seeing its AA credit rating downgraded further.
Meanwhile, US markets were buoyed by the tariff reprieve, rising for their fifth day in a row by the end of the week.
Australian shares reached a three-month high on Friday after eight straight sessions of gains.
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5 hours ago
- Reuters
ECB should watch out for price hikes from U.S. tariffs, Schnabel says
DUBROVNIK, Croatia, June 7 (Reuters) - The European Central Bank has made "great progress" in taming inflation but it should watch out for fresh price hikes caused by U.S. tariffs, ECB policymaker Isabel Schnabel said on Saturday. The ECB cut interest rates on Thursday for the eighth time in the past year and signalled at least a policy pause next month as it waits for the growth and inflation outlook to become clearer. Schnabel, the most prominent voice in the hawkish ECB camp that favours higher interest rates, celebrated inflation returning to the bank's 2% target. "I think we've made great progress, and as you know, our most recent inflation number was even below 2%," Schnabel told a conference in Dubrovnik. "Of course, that was to a very large extent driven by energy, but we do see that also the more persistent components are coming down and that is that is very, very good news." Croatian central bank governor and fellow hawk Boris Vujcic said the ECB was "nearly done" cutting rates provided that inflation settles at 2% as expected. But with the ECB now projecting inflation at 1.6% next year, other ECB policymakers, and especially Portugal's central bank governor Mario Centeno, are even worrying it may slow down too much. Schnabel said the ECB should rather switch its focus on possible, new "shocks", such as a global trade war waged by U.S. President Donald Trump's administration against its trading partners. She cited academic research showing that a 1% increase in producer prices around the world would result in a 0.2% increase, on average, in domestic producer prices in major economies. "Even in the absence of retaliation, the tariffs would be expected to be inflationary and even more so if there is retaliation," she said. As an example, Schnabel cited China's decision to restrict its exports of rare earths, which is forcing automakers and their suppliers to shut down production of certain models. China said on Saturday it was willing to accelerate the examination and approval of rare earth exports to European Union firms. Schnabel also cited ECB research showing that the effect of so-called trade diversion -Chinese producers shut out of the United States flooding European markets with their goods - was small. "If the effects were not small, you can be sure that there would be counteracting measures coming from the European Commission," Schnabel said. She argued all this suggested trade tensions would affect all economies, limiting the scope for the ECB's and U.S. Federal Reserve's monetary policies to diverge. "I expect this trade conflict to play out as a global shock that's working through both lower demand and supply," she said at the conference hosted by the Croatian central bank. "We can discuss which of the two effects on inflation is larger because that determines the net effect. But in any case, I would not expect a sustained decoupling (between the ECB and the Fed)," she said. Speaking on the same panel, Bank of England policymaker Megan Greene stuck a different tone, saying trade fragmentation should help bring down inflation in Britain, giving the BoE an "opportunity for monetary policy divergence going forward".
Reuters
8 hours ago
- Reuters
Bank of England is 'not sanguine' about inflation hump, Greene says
DUBROVNIK, Croatia, June 7 (Reuters) - The Bank of England still expects the ongoing rise in UK inflation to fade but is "not sanguine" about it after price growth proved more persistent than anticipated only a few years ago, BoE monetary policymaker Megan Greene said on Saturday. Britain suffered a bigger than expected inflation surge in April - even after taking out an error in the data - prompting investors to bet on the BoE slowing its already gradual pace of interest rate cuts. "Our view is that we can look through it, but of course there's a pretty big risk," Greene told a conference in Croatia. "The last time we had a lot of second round effects. We're hoping that we won't have second round effects this time around, but we're not sanguine about it." She argued the recent cost-of-living crisis, which saw inflation peak at 11.1% in 2022, might have made "people ... more sensitive to upticks in inflation and so that could feed through the wage-price behavior." Greene, an external member of the BoE's Monetary Policy Committee, voted last month with the majority for a quarter-point cut in rates to 4.25% and has said she was part of the group who might have voted to keep rates on hold if it hadn't been for U.S. tariffs. She reaffirmed on Saturday that private-sector pay growth was "way above what would be consistent with a 2% inflation target". "It's (going) in the right direction, it's just not going as quickly as I would like it to," she added.
Reuters
9 hours ago
- Reuters
ECB is 'nearly done' with cuts if forecasts hold, Vujcic says
DUBROVNIK, Croatia, June 7 (Reuters) - The European Central Bank is "nearly done" cutting interest rates if inflation settles at 2% as expected, ECB policymaker Boris Vujcic said on Saturday. The ECB cut interest rates on Thursday for the eighth time in the past year and signalled a policy pause next month since inflation was now safely back at its 2% target after three years of overshooting. "I would agree we are nearly done and that we are in a good position," Croatia's central bank governor told reporters on the sidelines of a conference. "If our projections materialise as they are in June I would think this is the right qualification of our monetary policy stance." He warmed any surprises in growth and inflation data would "affect" the ECB's thinking, as would the hard-to-predict outcome of the European Union's trade negotiations with the United States.
