What to expect from the RBA meeting in May 2025

The RBA will announce its next cash rate call on Tuesday May 20. The cash rate, currently sitting at 4.10%, affects the interest paid on both loans and deposits, making the RBA’s decisions important for both borrowers (especially home owners) and savers. Hikes to the cash rate can lead to rising interest rates, while cash rate cuts can help to lower interest rates.

Here’s what economists at the nation’s major banks predict the RBA will do next:

RBA

Speaking at the Chief Executive Women (CEW) annual dinner in Melbourne, RBA Governor Michele Bullock called for calm with regards to potential economic shocks from overseas, saying that the Australian financial system is well placed to absorb them. The Governor added that the RBA’s close monitoring of financial market conditions at home and overseas will help “build a fuller picture of the possible impacts as we prepare for the next Monetary Policy Board meeting on 19-20 May.”

“There are a lot of moving parts. We are bringing all this together to form an objective assessment of what it means for the outlook for domestic activity and inflation here at home. We are mindful of not adding to the uncertainty, and to that end, it’s too early for us to determine what the path will be for interest rates. Our focus remains on our dual mandate for price stability and full employment.”

The Governor’s statements are in line with the minutes of the previous monetary policy meeting, where it was decided to keep the cash rate on hold as “it was not appropriate at this stage for monetary policy to react to the potential risks that could move outcomes in either direction.” That said, the Board noted that the upcoming May meeting would be an “opportune time” to revisit this, given the additional available data.

Federal Government

Prior to the recent Federal election, Treasurer Jim Chalmers commented that financial markets were betting that “the next Reserve Bank interest rate cut in May might be as big as 50 basis points.” But now that the electoral dust has settled, the Treasurer has said in an interview that he’s “not going to count his chickens on that front.”

“Consumer confidence has actually started rebounding from the middle of last year, the tax cuts, petrol prices coming down, and then the interest rate cut has slowly rebuilt confidence off a very low base and so if we do see more interest rate cuts over the course of the rest of the year, I think that will be a very helpful way to boost confidence in the economy, particularly consumer sentiment, and also provide some cost‑of‑living relief for people.”

ANZ – 25 point cut

ANZ is putting its money where its mouth is, cutting its fixed interest rates well ahead of the RBA meeting.

While the bank had previously predicted just one more rate cut in 2025, it later changed its tune and predicted three cuts in May, July and August 2025. However, the latest updates from ANZ now forecast 25-point rate cuts in May and August 2025, with the final 25 points of easing in Q1 2026.

“We expect the RBA Monetary Policy Board to announce a 25bp rate cut on 20 May, which we had previously characterised as “near certain”. We have lessened our conviction on this, though we still consider a May cut more likely than not.”

“We see the likely Monetary Policy Board discussion to be on the choice between a pause and 25bp cut, not between a 25bp or 50bp cut… We consider a cut in May to be the path of least regret for the Board.”

Commonwealth Bank – 25 point cut

Commonwealth Bank is sticking to its guns and retaining its original cash rate call, which would see one cut per quarter. While a cut is expected in May 2025, according to Commonwealth Bank head of Australian economics, Gareth Aird, this is not expected to be a 50-point cut:

“…we consider the hurdle for the RBA to cut the cash rate by an outsized 50bp in May as very high, particularly after a rate decrease was not on the table in April.”

A forecast 25-point cut per quarter would see Australia’s cash rate falling to 3.35% by the year’s end.

NAB – 50 point cut

NAB is forecasting a 50-point cash rate cut in May 2025, with shifts in the global economy requiring the RBA to “normalise rates quickly to ensure policy is appropriately calibrated.”

NAB group chief economist, Sally Auld, said that given recent economic data, “the RBA will need to take a more neutral stance relatively quickly.”

“If the RBA knew on 1 April what it knows today, it is likely that the Board would have decided to lower the cash rate by 25bp at the last meeting and followed up that easing up with a 25bp rate cut in May. There is thus some catch up required to align policy settings with recent developments.”

Even if the RBA only cuts by 25 points in May 2025, NAB is still forecasting 100 points of easing. This would see the national cash rate falling to 3.1% by August, then to 2.6% by early 2026.

Westpac – 25 or 35 point cut

Westpac has “locked in” its forecast that a 25-point rate cut would occur in May 2025, given inflation figures from the end of April 2025. Despite the unwinding of several cost-of-living measures, these had limited effect on core inflation, thus presenting no hindrance to a rate cut. Three rate cuts are now expected in May, August and November 2025, for 75 points in total.

Westpac chief economist, Luci Ellis, had actually locked in her RBA forecast ahead of the recent inflation data releases, citing the RBA needing to respond to global economic turmoil. However, a 50-point cut is not part of these forecasts:

“We do not regard an inter-meeting cut or a 50bp cut as plausible, contrary to some of the more breathless commentary… While the risks have clearly shifted to the dovish side, we do not expect the RBA’s thinking to pivot directly from cutting reluctantly if at all, to going hard in May and signalling more. To do so would look panicky…”

Ellis also said that there was “a very outside chance” that the RBA could consider cutting the cash rate by 35 points in May, to return the cash rate to ‘round’ quarter point numbers. This would return the cash rate to its status quo prior to the pandemic-era 15-point rate cut in November 2020, though Ellis stated that “the RBA has long emphasised that quarter-point neatness is not a consideration for policy.”

To help you stay up to date with the latest updates to the national cash rate, as well as the changes to interest rates on home loans and savings accounts that follow, check Canstar’s RBA cash rate tracker or download the Canstar app.

Cover image source: peshkov/istockphoto.com