Insights 
VT 
TD Securities has revised its forecast for the Reserve Bank of Australia, predicting two 25 basis point interest rate cuts in 2025. These are expected to occur in August and November, reducing the cash rate to 3.35%.
This decision follows indications of economic weakness in Australia. The GDP growth in the March 2025 quarter slowed to 0.2%, with per capita GDP contracting in nine of the last eleven quarters. Factors include subdued consumer spending, adverse weather, and global uncertainties affecting the economy.
Economic Challenges Despite Cautious Approach
Despite these challenges, the RBA remains cautious, with no July rate cut anticipated. However, the Bank may consider a cut as a form of “insurance” against further economic decline. The RBA is prepared to implement rapid rate cuts if global economic disruptions, such as those from US trade policies, threaten stability.
Market expectations concur with TD Securities’ outlook, with predictions of multiple rate reductions by early 2026 to bolster growth. However, policy adjustments will depend on data, balancing inflation control with sustaining growth.
The Reserve Bank of Australia has already cut rates in May, with the next meeting set for July 7 and 8.
The current outlook from TD Securities sees the Reserve Bank of Australia making further adjustments in August and November next year. With the cash rate sitting at 3.85% after the May decision, further softening—in the form of two 25 basis point cuts—would bring it down to 3.35%. The reasons behind this, while not surprising, are worth examining closely.
Australian GDP growth has been tepid. Just 0.2% for the March 2025 quarter gives little reason for optimism, especially when one notes that per capita GDP has shrunk in nine out of the past eleven quarters. That detail hints at deeper structural issues. Not merely a slowdown—it suggests households are feeling the pinch on a personal level. Demand is teetering. Weak consumption patterns, partly due to rising living costs and sporadic weather events, continue to constrain retail and housing confidence. When combined with external risks, such as geopolitical trade tensions, the pressure on the central bank to act increases sharply.
No rate cut is expected for July, indicating that the central bank is willing to wait for clearer signals. Still, there are signs, subtle as they may be, that policy makers are leaving room for faster intervention. That readiness to shift gears quickly, if needed, frames the two projected 2025 cuts not as a certainty, but as a measured response to deteriorating conditions—should they materialise.
Outlook and Future Stimulus
Common among economic analysts is the view that more stimulus will be required going into 2026. That’s supported by pricing in interest rate futures. Market participants are now factoring in several potential cuts well before the first quarter ends. This shift in sentiment underscores the weakening confidence in domestic resilience.
We believe price pressures will largely define the speed and scale of those adjustments. If inflation falters further while growth remains listless, that may prompt the board to bring forward one of the reductions into early 2025. But with job figures still holding up and migration keeping certain sectors buoyant, expectations must remain responsive to new data.
Going forward, risk measures may start to bleed into market volatility. With the RBA leaning towards flexibility, rather than fixed direction, the response from interest rate derivatives has already begun to hint at that upcoming scenario. Options pricing shows uplift in implied volatility around the November timeline, suggesting some are preparing for larger swings or unanticipated moves.
In positioning, erring on the side of responsiveness rather than rigidity should remain paramount. We must listen less to narratives and more to numbers—particularly core CPI, job vacancy rates, and consumer sentiment indices. Sensitivity to macroeconomic releases will need to remain high, particularly in the weeks following the July meeting.
What’s clear is the central bank won’t hesitate, should it judge risks to growth outweigh cost-of-living measures. While that’s a careful calculation, it’s one they’ve made before. And if policy pivots faster than expected, some of us won’t be surprised.
