Deutsche Bank has updated its forecast for the Reserve Bank of Australia (RBA). They now expect a 25 basis point cut during the meeting on July 8. Previously, the first rate cut was anticipated for August. Now, the expectation includes cuts in both July and August, with another 25 basis point cut expected in November. These changes are due to signs of a weakening economy and growing confidence that inflation is decreasing enough for the RBA to adjust its policies sooner. Recently, the Australian monthly Consumer Price Index (CPI) data showed a year-on-year increase of 2.1% for May 2025, lower than the anticipated 2.3%.

Caveats With Monthly Inflation Data

While monthly inflation data has its limitations compared to official quarterly figures, it is not expected to impact the likelihood of a rate cut on July 7-8. Most analysts widely support the expectation of a cut in July. In 2023, the RBA first cut rates by 25 basis points on February 17-18 and kept the rate steady on March 31-April 1. Another 25 basis point cut occurred on May 19-20. Deutsche Bank has moved their rate cut expectations forward, now focusing on July instead of August. This new view suggests a more aggressive approach, predicting consecutive cuts in July and August, followed by one in November.

Shifts In Inflation Numbers And Market Signals

What has changed? The inflation figures are significant. The year-on-year CPI for May at 2.1% was below the forecast of 2.3%. While a small difference might not seem important, it signals easing price pressures from a central bank’s perspective. Alongside other weak economic indicators, this suggests that the need to keep rates high is reducing faster than anticipated. There’s ongoing discussion about the monthly CPI figures. They are less comprehensive than the quarterly updates and can fluctuate more. However, the current data is strong enough to influence decisions, and most analysts are now favoring action in July, as suggested by market pricing. Recent communications have not indicated any reason to believe otherwise. Earlier this year, the RBA started loosening policy with rate cuts in February and May, pausing in April. This pattern indicates the direction ahead. The momentum has clearly shifted toward easing, and the latest data supports this trend. This affects how we view timing and positioning. We are entering a period where clear signals about rate direction are important. Those waiting for more obvious evidence might miss opportunities. If bond market volatility increases, it will likely stem from rapid adjustments in pace rather than surprises in direction. We need to carefully assess short-term rate exposures. Falling inflation rates may bring focus to the front end of the curve. There’s potential to reassess positioning for July, and there are still opportunities available if August aligns with expectations. Monitoring short-term swaps could be beneficial. Notice how rate cuts are scheduled: July, August, and then November. This pattern suggests that the central bank is responding to progress in inflation data. Any changes in trends related to price stability—like in labor markets or consumer behavior—could alter this timing. For now, this sequence gives us a framework to follow. Generally, clear policy helps reduce volatility, at least in shorter terms. However, if expectations solidify too rapidly, it might complicate pricing risks for longer durations. This is crucial to watch as the market updates its assumptions, often more quickly than the central bank can communicate. We have adjusted our timeline, not just our approach. This shift should be reflected in rate hedging strategies in the upcoming sessions. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now