Investing.com-- The Reserve Bank of Australia (RBA) is likely to begin cutting interest rates from August, but will adopt a gradual and cautious approach to easing, Westpac Chief Economist Luci Ellis said in a note.
Ellis maintained Westpac’s base case for 25 basis point rate cuts in August and November, with two additional cuts now expected in early 2026, bringing the cash rate down to a low of 2.85% from the current 3.85%. The RBA’s peak rate was 4.35%.
The Board prefers to move cautiously and predictably, Ellis wrote, adding that while the disinflation trend is clear, the RBA is not inclined to front-load cuts. This is about "reducing restrictiveness, not rushing to neutral.”
She noted that incoming data, including weak GDP and slowing population growth, supports the case for further easing. However, near-term labour market strength and a potentially higher-than-expected Q2 CPI could delay action until August.
Ellis said recent forecasts indicate trimmed mean inflation could fall below the RBA’s 2–3% target midpoint later this year, a key shift likely to prompt further rate reductions.
The risks remain tilted to the downside, with a weakening handover from public to private sector demand and slowing wage growth despite low unemployment, Westpac said.
“If we are right, the RBA might be in for a bit of an ‘oh crikey!’ moment late this year,” Ellis added, pointing to softening consumer spending and business activity that could deepen disinflation pressures.
