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Highlights

 

  • A Reuters poll forecasts a third 25 basis point rate cut by the Reserve Bank of Australia (RBA) on July 8, bringing the cash rate to 3.60%.

  • Economists now expect up to five rate cuts in 2025, driven by falling inflation and weaker-than-expected consumption.

  • Growth projections for 2025 and 2026 have been downgraded, while the Australian dollar remains firm despite expectations of further easing.

The Reserve Bank of Australia (RBA) is expected to cut interest rates for a third time this year at its upcoming policy meeting on July 8, as easing inflation and signs of a weakening economy prompt the central bank to accelerate its monetary easing path, according to a Reuters poll of economists.

In the latest survey conducted between June 30 and July 3, 31 out of 37 economists predicted a 25 basis point cut to bring the official cash rate down to 3.60%. The remaining six expected the RBA to hold steady. The forecast reflects a notable shift in market sentiment, with expectations of total rate cuts in 2025 rising from three at the start of the year to as many as five.

The anticipated rate decision follows a dovish turn at the RBA's May meeting, when policymakers signalled a growing focus on supporting economic growth. “The post-COVID inflation surge is pretty much entirely out of the economy,” said Philip O'Donaghoe, chief economist for Australia and New Zealand at Deutsche Bank. “The RBA's task now is to ensure growth is strong enough to maintain labour market health, which could mean additional cuts in August.”

Inflation slowed to 2.1% in May, from 2.5% in January, with economists expecting an average of 2.6% in 2025 and 2.7% in 2026—within the RBA’s target band of 2–3%, but still near the upper range.

Alongside easing inflation, recent economic data pointed to subdued growth. The economy expanded just 0.2% in the first quarter of 2025, a marked slowdown from 0.6% in the final quarter of 2024. Annual GDP growth forecasts have been revised down to 1.6% for 2025, from 2.0% previously. The 2026 forecast was also trimmed slightly to 2.3%.

According to Westpac’s chief economist Luci Ellis, "a large part of the reason the RBA is cutting more aggressively is that consumption has been weaker than expected." Sluggish consumer spending, coupled with global trade uncertainties—including the looming expiry of a 90-day pause on U.S. tariffs—has increased downside risks to Australia’s economic outlook.

More than 60% of economists in the poll expect a further 25 basis point cut this quarter, potentially bringing the cash rate to 3.35% by September. However, projections for the end of 2025 remain divided: 16 out of 33 economists forecast a rate of 3.10%, while 15 see it at 3.35%.

Australia’s major banks—ANZ, CBA, NAB, and Westpac—were similarly split, highlighting the uncertainty surrounding the trajectory of the RBA’s policy in the coming months.

Despite expectations of deeper rate cuts, the Australian dollar has gained over 6% this year, buoyed by broad weakness in the U.S. dollar. A separate Reuters poll suggested the currency could strengthen by a further 2% over the next six months.