ASX rises and Aussie dollar falls as RBA opens door to more rate cuts after 0.25 percentage point reduction

That will be it from us today. Thanks for joining us.

Thank you to everyone who sent comments into the blog. We’re sorry that we couldn’t respond to all of them. There were a lot.

If you join us back here tomorrow we’ll have more post-rate cut analyses and stories to share with you.

Till tomorrow, maintain yourselves.

Shane Oliver, AMP Capital chief economist, has circulated a note on the RBA’s cut rate.

He summarises issues this manner:

• The RBA cut by 0.25% taking its cash rate to 3.85%. This is the second rate cut in this easing cycle.
• The RBA remains “cautious about the outlook”, but its overall commentary appears more dovish leaving the door wide open for further easing but in no rush unless the tariff threat escalates.
• We expect the RBA to cut again in August, November, and February next year taking the cash rate to 3.1%. There is now close to a 50% probability of another cut as early as July though.
• The ongoing rate cutting cycle should help underpin a modest further pick up in Australian economic growth to around 1.8% year-on-year, but with the tariff threat posing a big downside risk.

For households with mortgage repayments, he has calculated how much extra money those households will still be paying in repayments compared to before the rate hiking cycle began in May 2022.

“The newest reduce signifies that simply two of the 13 charge hikes between Could 2022 and November 2023 which totalled 4.25% have been reversed,” he says.

“For mortgage funds it’s going to reverse one other $1,260 of the $16,800 enhance in annual funds on a $660,000 since Could 2022. Or a complete saving of $2,520, which nonetheless solely reverses 15% of the rise in funds since Could 2022.”

That calculation really does illustrate how, in Australia, so much of the “heavy lifting” in the fight against inflation falls on households with mortgages.

Oliver also says the RBA appears to have become “progressively extra dovish” since its February assembly.

“The RBA is now not referring to an additional tightening within the labour market, neither is it referring to the dangers of easing “too much too soon”, it now sees underlying inflation again at goal, it sees the dangers to inflation as having grow to be “more balanced” and its now extra involved in regards to the menace posed by the US tariffs and sees this as being disinflationary for Australia,” he says.

“And as in April, RBA Governor Bullock is now not pushing again towards market expectations for additional easing as was the case in February.

“The RBA reiterated that it will “be attentive to the data and the evolving assessment of risks”, but overall, it appears to be leaving the door open for further easing.”

Among the many prime performing particular person shares on the ASX at present had been TechnologyOne (up $3.74, +11.33%, to $36.76), Readability Prescription drugs (up 11 cents, +5.05%, to $2.29) and Domino’s Pizza (up 96 cents, +3.91%, to $25.51).

Among the many worst performing shares had been Resmed (down $1.71, -4.41%, to $37.16), AUB Group (down 74 cents, -2.08%, to $34.8), and Fisher & Paykel Healthcare (down 66 cents, -1.97%, to $32.83).

Market pricing for additional rate of interest cuts elevated after the Could resolution, with a few 50 per cent likelihood of one other quarter of a proportion level discount on the subsequent assembly in July, in line with LSEG knowledge.

Betashares chief economist David Bassanese has forecast two extra rate of interest cuts this yr, to take the money charge to three.35 per cent.

“With underlying inflation expected to fall to the mid-point of the target band, there remains a strong case for the RBA to continue to process of ‘normalising’ interest rates [by] reducing them from still restrictive levels,” he wrote.

“If inflation falls to normal levels, so should interest rates.”

Whereas Mr Bassanese famous the potential for extra cuts if the worldwide tariff uncertainty hits international and native financial progress greater than anticipated, however stated it was not his base case.

“The openness of the Trump Administration to lower tariffs in exchange for trade deals has been a major development in recent weeks, and should be enough to avoid the US tumbling into a serious recession.

“However if the US does fall into recession, the RBA might simply reduce charges into expansionary territory — so far as 2 per cent and even decrease.”

CreditorWatch chief economist Ivan Colhoun described it as “a extra dovish easing” by the central financial institution.

“The accompanying forecasts and commentary replicate larger anticipated destructive results of US tariff coverage and associated uncertainties than I had anticipated … there stays vital uncertainty across the last scope of US tariff coverage,” he stated.

“It is not unreasonable to count on two to a few extra rate of interest cuts this yr.”

Mr Colhoun noted that the RBA’s updated forecasts, which has incorporated the anticipated negative effect of tariffs, assume two further cuts to the cash rate.

“Tariff results have seen the RBA trim its forecast restoration in GDP progress, increase its unemployment forecast very barely, and cut back its inflation forecasts to a broadly at goal 2.6 per cent all through the forecast horizon.”

 As reported below, the big four banks have all passed on the Reserve Bank’s 0.25 percentage point rate cut.

According to comparison site Canstar, these are all the lenders who have passed on the rate cut to home loan customers.

Macquarie Bank will also pass on the 0.25 percentage point cut for their variable home loan reference rates from 23 May (but we haven’t seen what their new lowest advertised variable rate will be).

You can read more detail about interest rates here:

Trading has finished on the stock exchange today, and the ASX200 index has gained 48.2 points (+0.58%) to close on 8.343.3 points.

Hello workforce,

Here’s what’s in Victoria’s budget for the coming year (having been locked up looking at the books for several hours today).

Debt is set to balloon to record levels as the state government battles to rein in spending.

The axe looms over thousands of public sector jobs. At this stage it’s 1,200 full time roles – but many of them are jobs that have expired not people that are currently filling them. 

But up to 3,000 full-time employees are in the frame, with a review due in June.

Treasurer Jaclyn Symes’ first state budget reveals net debt will reach $167.6 billion dollars this year, before growing to an eye-watering $194 billion dollars in three years’ time. 

It will see the state pay $7.6 billion in interest this year – or $20.7 million a day. Those repayments will jump to $10.6 billion dollars annually or $29 million a day in three-years’ time.

In its Statement on Monetary Policy, the Reserve Bank said that housing prices had yet to “materially reply” to easier borrowing conditions, i.e. lower interest rates.

So I requested RBA governor Michele Bullock whether or not that gave the board extra consolation to decrease rates of interest additional.

“Our focus needs to be on inflation and, if it is the proper factor to do when it comes to employment and inflation is to decrease rates of interest, I believe we’ve got to just accept what which may indicate for housing as a result of, as I stated earlier, the problem for housing is provide and demand,” she responded.

“And if we begin occupied with, ‘Properly, can we decrease rates of interest due to housing costs?’ we will take our eye off the ball, which is inflation, unemployment. And I do not assume that will be the proper factor to do.

“So I acknowledge that some people are worried that as interest rates come down, housing prices will rise.

“However different insurance policies are actually going to must step up right here and deal with what’s a housing scarcity.”

RBA Governor Michele Bullock says despite inflation easing, there is uncertainty about global growth due to the US tariffs.

You may watch extra right here:

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Tim Lawless, the research director for Cotality (formerly CoreLogic), says the RBA’s rate cut will support housing markets.

However, he says people shouldn’t expect a boom in housing prices until affordability improves.

He says borrowers are likely to benefit from the rate cut through lower mortgage rates, and the rate cuts should lift consumer confidence (because historically, rate cuts have tended to boost sentiment).

He says that combination of lower interest rates and improved sentiment is likely to support increased activity in the housing sector, given there is generally a correlation between consumer sentiment and home sales volumes.

“We may additionally see continued upward strain on housing costs, extending the broad-based restoration in values that started after the February charge reduce,” he says.

But having said that, he said we shouldn’t expect a “vital acceleration in capital features.”

“A number of components proceed to constrain worth progress, together with stretched affordability, cautious lending practices, and the fact that regardless of 50 foundation factors of easing, rates of interest stay in restrictive territory,” he says.

“Whereas decrease charges ought to assist to make housing extra accessible, additional upward strain on costs would offset the advantages of improved mortgage serviceability.

“Each of the four housing affordability metrics published by Cotality were either at record highs or equal record highs at the end of last year, a reminder of the challenges many prospective home buyers face,” he says.

Treasurer Jim Chalmers says the RBA’s charge reduce exhibits progress in bringing down inflation.

You may watch the Treasurer talking right here:

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A query from my colleague David Chau about the specter of a renewed inflation break-out.

RBA governor Michele Bullock says that menace appears to have eased, however hasn’t disappeared.

“We have gone a little more comfortable, just a little more comfortable, that things are going in the right direction, so we can take the brake off a little bit more.”

Therefore why the RBA felt comfy reducing the money charge to three.85% at present.

RBA governor Michele Bullock says the 0.25 proportion level reduce was a “consensus decision” however that the board did talk about a double charge reduce.

“What the board discussed was two options. Hold, or lower. There was a bit of discussion about hold and that was put aside fairly quickly.

“The dialogue then was about reduce and the way huge and there was a dialogue about 50 and 25 (foundation factors). The board was of the view that 25 was the proper quantity to chop on this event,” she said.

Ms Bullock said by focusing on the domestic economy and putting aside the international situation for a moment, they came to a conclusion.

“With inflation within the band and likewise unemployment doing fairly nicely, we predict there’s a little bit of scope to decrease rates of interest. I do know the board was of the view that 25 foundation factors was the proper factor. For now, it would not rule out that we would must take motion sooner or later.”

Following the big four banks, Macquarie Bank says it will also pass on the RBA’s rate cut.

It says it will reduce its variable home loan reference rates by 0.25% per annum.

The change will be effective from 23 May 2025.

It says customers can view their new rate in Macquarie Online Banking or the Macquarie Mobile Banking app from 23 May 2025.

It says for customers paying both principal and interest, their first monthly repayment that falls within 30 days after 23 May 2025 will remain the same with repayments changing the following month. Customers paying interest only will have their first repayment after 23 May 2025 change.

RBA governor Michele Bullock says there is usually a staff recommendation from the bank about what to do with monetary policy.

She can only speak to her time on the board but acknowledges that, in that time, the board has never voted against the RBA staff recommendation on rates.

My colleague David Taylor asks RBA governor Michele Bullock if the Reserve Bank is “on alert” for a “cataclysmic occasion” on monetary markets, given the uncertainty generated by the Trump administration’s tariff insurance policies.

“We’re on the alert for that. And we’re paid to fret about that form of factor. And we’ve got been watching that very intently, as produce other central banks all all over the world,” the RBA boss responds.

“For those who have a look at our situation evaluation, it does recommend that in a very unhealthy end result there would there might probably be a recession, sure.

“But that’s in the very extreme circumstance. And again, it was to try and give ourselves some sort of spectrum of outcomes that we might be looking at at the moment. We’re not looking at that, but we need to be alert.”

An fascinating touch upon the inflationary impression of Donald Trump’s tariffs from Michele Bullock in her opening remarks:

“One thing to keep in mind, we have made the judgement that global trade developments will overall be disinflationary.

“Nevertheless, there’s a threat to inflation on the upside, commerce insurance policies might result in provide chain points, which might increase costs for some imports, a lot as we noticed through the pandemic.

“And so we’ll also need to be alert to such upside risks.”

Delivering her opening deal with, RBA governor Michele Bullock reiterates how essential it was for the RBA to convey inflation down as a result of it “hurts everyone”.

Nevertheless, she repeats that the RBA intentionally selected to take a “cautious approach” to elevating rates of interest to guard jobs.

Now, she says the job is to maintain inflation the place it’s.

Here is a have a look at how the RBA’s money charge bought to the place it’s now, at 3.85 per cent after this afternoon’s reduce:

We’re watching the door by means of which she’ll come any minute…