Expert says monetary policy to stay on course despite April CPI data
While core inflation edged up slightly in April, one industry expert believes the modest increase is unlikely to be a cause for alarm for the Reserve Bank of Australia (RBA), which earlier this month cut the cash rate for the second time this year.
“Core inflation might have ticked up slightly in this monthly dataset, but it’s not likely to be a cause for concern for the Reserve Bank,” said Sally Tindall (pictured above), data insights director at Canstar. “While progress in getting core inflation back to the target of 2.5% has stalled, at least it’s stalling within the target band.”
The latest monthly Consumer Price Index (CPI) indicator, released by the Australian Bureau of Statistics (ABS) on Wednesday, showed that headline inflation remained stable at 2.4% for the third consecutive month. Meanwhile, core inflation has been largely unchanged, hovering between 2.7% and 2.8% since December 2024.
After a 0.25% cut last week, the RBA’s cash rate now stands at 3.85%, a level that many analysts believe still exerts downward pressure on inflation.
“The (RBA) board believes there is still restrictiveness in the current cash rate of 3.85% and is open to lowering it further, particularly if core inflation gets out of neutral and closer to the target,” Tindall said. “The central bank is also on high alert for risks that could come from further global volatility and ready to act should it need to.”
Market expectations are leaning towards further rate cuts in the months ahead. Economists at CBA, Westpac and ANZ anticipate two more cuts in the current cycle, with the next expected in August. NAB, meanwhile, predicts a cut in July, followed by two additional moves before year-end.
“The big bank economic teams certainly expect we’ll see between two and three more cuts in the months ahead,” Tindall said. “However, borrowers should not take this as a given.
“If you’ve got a mortgage, focus on what to do with the relief from the February and May cuts, rather than counting on future relief that might not fully materialise.”
Tindall noted that variable rate cuts from CBA, NAB, and ANZ would take effect from tomorrow, May 30, as a result of the latest RBA cash rate reduction.
“The majority of variable mortgage interest rates will be lower from Friday,” she said. “This is a great time to take stock of your rate and consider whether your repayments are at the right setting for your finances and your financial goals.”
For mortgage holders, any additional cuts could offer meaningful savings. A homeowner with a $600,000 mortgage and 25 years left on the term might save around $90 per month with one more 0.25 percentage point rate cut, assuming full pass-through by lenders. Two more cuts could reduce monthly repayments by approximately $178, while three cuts could lead to a total drop of $265 by year-end.
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