With the S&P/ASX 200 Index (ASX: XJO) taking a beating on Monday, investors would be thrilled to receive an April Fool's Day interest rate cut from the Reserve Bank of Australia.
The RBA will announce its rate decision tomorrow at 2:30pm AEDT.
Last month, on 19 February, was the first time the ASX 200 received a boost from an RBA interest rate cut since November 2020. The 0.25% reduction last month dropped Australia's official cash rate to the current 4.10%.
Investors and mortgage holders alike are now hoping to see that fall to 3.85%.
Throwing a fly in that ointment are the sweeping tariffs being rolled out by United States President Donald Trump. These have the potential to rekindle inflation, not just in the U.S. but across the world, including here in Australia.
And with the Trump administration set to detail a broad range of reciprocal tariffs on 2 April, or 'liberation day', that makes the RBA's 1 April decision a bit tricky.
Supporting the concept of an ASX 200 boosting interest rate cut tomorrow, last week's ABS data showed that annual trimmed mean inflation came in at 2.7% in February, down from the 2.8% inflation print in January.
That sees the RBA's favoured inflation measure within the central bank's 2% to 3% target range.
Despite inflation falling within that band, according to the RBA Rate Indicator, money markets are now only pricing in an 8% chance the RBA will cut interest rates tomorrow. That's down from 12% expectations of a rate cut a week earlier.
Here's what the investing pros are predicting.
What are the experts forecasting for tomorrow's RBA interest rate call?
Commenting on the outlook for an interest rate cut tomorrow, Webull Securities Australia CEO Rob Talevski noted that, "The consensus of a pause broadly makes sense."
According to Talevski:
Hawkish rhetoric from the RBA last month did not indicate to expect the cutting cycle to continue, geopolitical uncertainty out of the US remains at near all-time highs, and the effects of last month's rate cut are yet to fully trickle down into the economy.
On the other hand, the recent data could be viewed as soft enough to warrant further discussion, even without the previous cut yet taking effect. Given the Bank was accused of waiting too long on the cycle in terms of the upswing, there is a certain level of pressure to get it right on the way down.
Who knows – the RBA might play us for April Fools and delight us all by delivering another hawkish cut, with close attention paid to April data points and global economic developments driven by the US.
Josh Gilbert, market analyst at eToro, is less optimistic that ASX 200 investors will get an interest rate reduction from the RBA tomorrow. "A second rate cut is not on the cards for April," Gilbert said.
"The RBA cut rates back in February but has kept a hawkish stance and made it clear they're in no rush to cut rates again," he added.
If the RBA doesn't cut tomorrow, the next meeting is scheduled for 20 May. And that date looks more promising for some rate relief, according to Gilbert.
"The expectation for a May cut has grown," he said. "The Federal Election date call for May 3rd may throw a question mark on a rate cut in May, but markets still see a 70% chance of a cut."
And we'll leave off with Goldman Sachs here.
With the RBA prone to surprise market expectations, the broker said a 1 April interest rate cut could well happen.
According to Goldman Sachs' chief Australia economist Andrew Boak (quoted by The Australian Financial Review):
Given this macro backdrop and the fact that the RBA's forecasts are yet to incorporate downside risk from uncertainty on global trade policy, we see a solid case for the RBA to front-load the easing cycle. We therefore view an April cut as a very close call.
Stay tuned!
