Deutsche Bank has altered its forecast for the Reserve Bank of Australia, now predicting a 25 basis point cut at the 8 July meeting. Initially, the first move was anticipated in August, but the expectation has shifted to cuts in both July and August, and another 25bp cut in November.

This change is due to weaker economic signs and increased confidence that inflation is decreasing enough for the RBA to normalise policy sooner. Recently, Australian monthly CPI data showed a 2.1% year-on-year increase for May 2025, lower than the predicted 2.3%.

Caveats With Monthly Inflation Data

While there are caveats with monthly versus official quarterly inflation data, they are not expected to affect the likelihood of a rate cut on 7-8 July. Expectations for a July cut are widespread.

In the current year, the RBA made a 25 basis point cash rate cut on 17-18 February and left the rate unchanged on 31 March-1 April. A further 25 basis point cash rate cut occurred on 19-20 May.

We’ve just seen Deutsche Bank bringing forward their rate cut expectations, pulling July into focus after previously eyeing August as the kick-off point. The new projection sketches out a more aggressive path, pencilling in back-to-back cuts in July and August, followed by a third in November.

Shifts In Inflation Numbers And Market Signals

What’s shifted? The inflation numbers have done a lot of the legwork. May’s year-on-year CPI came in at 2.1%, slipping under the 2.3% forecast. A tenth or two may not seem groundbreaking, but in a central bank’s world, it’s a quiet redirection. The signal is that price pressures are easing. When considered next to weaker broader indicators, the narrative starts to change: the pressure to maintain elevated rates is cooling quicker than expected.

There’s always a debate around the monthly CPI reads. They’re less complete than the quarterly updates and have a tendency to wiggle about a bit more. But here, they’re supported enough by the underlying data to carry weight. Most are now leaning toward action in July, as the market’s pricing suggests, and there’s been little in recent communications that would argue otherwise.

Earlier in the year, the RBA already began loosening policy. We saw rate cuts in February and May, with a pause in April. That pattern is giving a shape to what’s ahead. Momentum has clearly built around easing, and the latest numbers only firm up that path.

This matters most in how we frame timing and positioning. We’re moving into a stretch where clarity around rate direction is needed. Those waiting for more obvious confirmation might end up a step behind. If bond volatility picks up, it probably won’t be from surprises in direction—but from sharper pricing of pace.

We should measure short-term rate exposures carefully. Fading inflation prints tend to draw attention to the front end of the curve. There’s scope there to rethink positioning around July and value still on offer if August holds to consensus. Watching short-dated swaps may prove useful.

Also, notice how the cuts are spaced: July, August, then November. That rhythm implies not just a reactive posture from the central bank, but one that’s guided by progress in inflation data. Any deviation in price stability trend—from labour markets or consumption, for instance—would alter the cadence. But for now, the sequence is giving us a template to model against.

Policy clarity generally gives volatility a chance to back off, at least in shorter tenors. But if expectations harden too quickly, repricing risk becomes a concern on the longer end. That’s worth tracking as the market adjusts its assumptions more aggressively than the central bank tends to communicate.

We’ve shifted timetable, not just tone. That should be reflected in rate hedging strategies in the coming sessions.

Create your live VT Markets account and start trading now.