A Reuters poll surveyed 43 economists on expectations for the Reserve Bank of Australia’s (RBA) future actions. Forty-two economists expect the RBA to cut the cash rate to 3.85% on May 20. One economist predicts a larger cut of 50 basis points. Three major Australian banks—ANZ, Commonwealth Bank of Australia, and Westpac—forecast a 25 basis point cut, while NAB expects a 50 basis point reduction.

The median forecast indicates the cash rate may decline further to 3.35% by the end of 2025. ANZ has adjusted its expectations following tariff news earlier in April, predicting a cash rate of 3.35%. Changes in global growth and business environment shifts are factors influencing these forecasts. Business softness currently observed supports a potential rate cut by the RBA. Tariff modifications are also regarded as a factor potentially affecting consumer confidence and general economic outlooks.

Expectations of Rate Reduction

What we see here is a consolidation of expectations around a measured move by the Reserve Bank. Out of the 43 economists polled, nearly all anticipate a 25 basis point rate reduction at the next meeting. Only one outlier presumes a sharper move, believing a full half-point cut may be warranted. That, however, remains a minority position, and the prevailing expectation is more moderate.

The projections laid out are not speculative guesses but are based on key data lately coming into play. A string of activity stemming from earlier tariff developments has already led some institutions to revise their trajectory estimates for the cash rate. ANZ, for example, recalibrated its outlook following those tariff adjustments, now envisioning a drop to 3.35% by the close of next year. While that level reflects a gradual easing, it highlights how the bank anticipates persistent softness in the domestic outlook.

Business sentiment has been trailing lately, and if indicators trend further down, the Reserve Bank may feel compelled to act earlier or with more weight. Consumption metrics haven’t rebounded as many had hoped, and the system now appears to be caught in a cautious gear, with attention shifting from inflation control toward supporting output without triggering unintended asset movements.

Market Implications

For derivative position-holders, especially those involved in rate-sensitive instruments, it’s necessary to readjust exposure. Timing matters—it always has—but when central bank actions can be pencilled in with this degree of clarity, delayed responsiveness comes with a price. Rate cut options, already reflecting the consensus, may lose attractiveness as an entry point, while floating expectations priced into swaps and futures are not yet aligned with the full easing path suggested by some.

It’s right now, not later, that pricing inefficiencies arise from divergent assumptions between market movers and institutional forecasts. Without shaking the framework too abruptly, some of the larger banks are building in room for a more extended path to lower rates. Westpac and the others see a step-down approach, aligned more with a series than a single adjustment. Meanwhile, NAB stands firm in viewing conditions as needy enough to justify an early and bolder move.

That divergence in large bank strategies should not be ignored. It sets up relative value opportunities across tenors in the yield curve. Targeted rate exposure in shorter- and medium-dated swaps presents a clear response to the more dovish end of those forecasts. Positioning accordingly—either through directional bias or volatility surface action—could be warranted where implieds still haven’t factored in full downside.

The softness in the business sector remains a stubborn gauge for how far monetary policy needs to lean. And while tariffs seem like an external subplot, they feed directly into consumer psychology and spending, which in turn holds sway over the central bank’s temperature reading. We’d treat that connection with extra attention, especially as it may resurface through household demand data.

Vols haven’t expanded much, which suggests expectations on move magnitude are stable. But the rate path could sway terminal pricing—so a calendar-specific strategy might be better suited in the near term than positioning for sharp, one-off swings.

Nothing here points to a surprise. What’s revealed is the space between official tone and actual economic rhythm. And within that space—wide enough now to navigate—lies most of the tradable edge.

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