Central bank's hawkish tone and steady inflation point to pause, says bank economist
The Reserve Bank of Australia (RBA) will likely keep the cash rate unchanged at its April 1 meeting, with signs pointing to a cautious central bank still wary of cutting too soon, according to Westpac.
Luci Ellis (pictured above), chief economist at Westpac Group, said that last month’s hawkish tone from the RBA has effectively ruled out the possibility of a follow-up rate cut in April.
“The RBA was too hawkish in its rhetoric last month to consider a cut at this meeting,” she said. “We do not expect any surprises from the RBA this meeting.”
Although the bank still expects a rate cut in May, Ellis stressed that the RBA had not signalled an intention to move quickly after February’s easing. A back-to-back cut would risk damaging the central bank’s credibility, she said.
Inflation remains a key focus for policymakers. The RBA’s latest forecasts suggest that trimmed mean inflation will stay flat at 2.7%, based on market pricing that assumes around 90 basis points of easing over 2025. Ellis said the central bank believes less easing would be enough to return inflation to the 2.5% midpoint of its target range.
Westpac’s outlook is similar to the RBA’s, projecting inflation to stay close to 2.5% and unemployment to rise modestly to 4.5%. Based on that, Westpac sees the cash rate falling to 3.35% by the end of 2025.
Among the major banks, there is growing divergence in rate expectations. National Australia Bank forecasts the RBA will cut the cash rate four more times, taking it to 3.1% by February 2026. Commonwealth Bank shares Westpac’s view, also forecasting a year-end rate of 3.35%. In contrast, ANZ anticipates just one more cut, which would bring the rate to 3.85%.
Recent data have generally tracked close to the central bank’s forecasts. February’s inflation numbers showed headline CPI rising 2.4% annually, while the monthly trimmed mean fell to 2.7%. “Inflation in the stickier housing-related and financial services components continues to unwind,” said Ellis.
The February labour market data was more mixed. Employment and participation rates eased, while population growth also came in softer than expected. These shifts could reduce inflationary pressure, particularly in housing.
Looking globally, Ellis noted that downside risks to the outlook remain, with fading US economic momentum and concerns over trade tensions. However, she added that Treasury analysis suggests limited impact for Australia.
Fiscal measures announced in the recent Federal Budget, including a six-month extension of electricity rebates, are unlikely to change the RBA’s view, as they mostly delay CPI movements without shifting core inflation.
Despite expectations of no change in April, Ellis said the post-meeting statement will still be important. Markets will be watching closely for any update on wages or consumption, especially as the RBA’s near-term wage growth forecasts appear optimistic.
With the inflation data for the March quarter due before the May meeting, Ellis said even a small downside surprise could lock in Westpac’s view that further easing is coming — though not just yet.
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