The likelihood of the Reserve Bank of Australia (RBA) cutting interest rates next week appears high, with most economists and market analysts anticipating a reduction at the upcoming meeting on May 20. The consensus points toward a 25 basis point cut, which would lower the cash rate from 4.10% to 3.85%. This expectation is driven by easing inflation, global economic uncertainties, and a desire to support domestic growth.
Major banks have also weighed in. The Commonwealth Bank of Australia (CBA) forecasts a 25 basis point cut in May, with further reductions in August and November, aiming for a year-end cash rate of 3.35%. National Australia Bank (NAB) predicts a more aggressive 50 basis point cut in May, followed by additional cuts throughout the year.
For an average mortgage of approximately $665,978, a 25 basis point (0.25%) reduction in interest rates could lower monthly repayments by around $92, assuming lenders pass on the full rate cut. This estimate is based on a 30-year loan term and current average variable interest rates. Should the RBA implement a larger 50 basis point (0.50%) cut, monthly repayments on the same loan could decrease by approximately $197.
The anticipated interest rate cut is expected to positively influence consumer sentiment. Historically, reductions in the cash rate have led to immediate upticks in consumer confidence. For instance, following the RBA’s 25 basis point cut in February 2025, the Westpac-Melbourne Institute Consumer Sentiment Index surged to a three-year high in March, reaching 95.9, driven by easing inflation and cost-of-living pressures.
Let’s see what the next week brings….