RBA interest rates: Businesses and exporters to benefit as banks lock in May cut call

Major banks are locking in expectations of an interest rate cut in May with all eyes on crucial inflation data due next Wednesday.

Westpac reckons borrowers can be confident of rate relief when the Reserve Bank next meets, even if inflation figures are a little higher than expected.

Markets have been panicked in recent weeks amid a growing international trade storm sparked by US President Donald Trump jacking up taxes on imports. His Government has since watered down the proposals but traders are still betting heavily on an RBA cut.

Yet the International Monetary Fund earlier this week dialled down growth projections and warned Australian inflation was likely to bounce back in 2026.

Westpac chief economist Luci Ellis said “the turmoil abroad has . . . changed the game and flipped the risks”.

“You can lock in a 25bp cut in May, even if the (March quarter) inflation data is a shade disappointing.”

She said the big four bank did not expect the US administration to implement the trade taxes at the levels it first announced, although “some damage has already been done”

“Global growth – and especially US growth – will be slower; the response of China will (reduce inflation) for the world outside the US; and uncertainty is likely to delay decisions on some investment projects,” Ms Ellis said.

A double shot 50 basis point cut was not considered “plausible”, she added.

“To do so would look panicky and is contrary to the limited RBA communication since the ‘Liberation Day’ tariff announcements, which was much more circumspect.”

Any change to interest rates will have a far-reaching impact, new research from the Reserve Bank on Thursday showed.

While all eyes are focused on families and mortgages when the RBA meets, household cash flow is only a minor part of the overall economic effect from rate moves.

Much more significant is how the central bank’s decisions move the exchange rate. When a cut is expected, the Austalian dollar will fall, supporting exporters and making imports more expensive.

Between one quarter and two-thirds of the impact of a rate rise or cut is through the exchange rate — much more influential than household mortgages.

Also significant are changes to business investment and home buying driven by rate moves.

It means a cut in May would boost Aussie businesses selling products internationally and help encourage companies to invest in the face of international uncertainty.

When making decisions, the RBA wants to keep both inflation and unemployment under control.

The central bank has recently shown growing confidence that core inflation is on track to return to the 2 to 3 per cent target band, which enabled a rate cut in February.

Commonwealth Bank earlier this week tipped core inflation would run at 2.8 per cent for the 12 months to March — back into the target range for the first time since 2021.

ANZ on Thursday forecast core inflation would be 2.9 per cent.

“We expect this to support a rate cut in May, given the weaker global backdrop,” report lead author Adam Boynton said.

On the way up will be electricity, as subsidies roll off, petrol, and education, the big four bank predicted.

ANZ also chopped 0.5 percentage points off US growth projections and shaved 0.6 per cent off forecasts for China’s economy. That would boost the case for rate relief.