Now that the election is over, the next big event on the national stage in May is the Reserve Bank of Australia (RBA)'s decision on interest rates.
The RBA is scheduled to meet next Tuesday, 20 May. Theoretically, the Reserve Bank could either keep rates on hold, raise them, or lower them at this meeting. In practice, however, it is a near certainty that the Bank will move to cut rates. The only question will be by how much.
The RBA has already cut rates once in 2025 – at the February meeting, no less. At that time, the bank cut rates by 25 basis points. However, the ASX's interest rate money markets presently predict that there is currently a 54% chance the RBA will deliver a double-cut of 50 points next week. That would leave the cash rate at 3.6%.
The RBA likely feels free to lower rates further following last month's encouraging inflation numbers. As we covered at the time, the Australian Bureau of Statistics (ABS) revealed that core inflation (which is the RBA's preferred metric for price rises) dropped to 2.9% on an annual basis over the three months to 31 March 2025. That was down from the 3.3% recorded over the December quarter last year.
The RBA has an inflation 'target band' of between 2% and 3%. Last quarter was the first time that core inflation has fallen into this band since 2021.
Cue the expectations of more interest rate cuts.
Major ASX bank stock beats RBA to cut interest rates
Normally, the ASX's banks wait until the RBA shows its hand before passing on any increases or decreases to the cash rate to their customers. That's despite the banks' habit of adjusting longer-term interest rates on term deposits outside the movements of the RBA.
But this May, one of the major ASX bank stocks has decided to bolt out of the gate early and deliver a preemptive rate cut of sorts.
That ASX bank stock is none other than ANZ Group Holdings Ltd (ASX: ANZ).
According to reporting from Nine News, ANZ has moved to cut interest rates on its mortgage loans. But not all mortgages will benefit. ANZ has reportedly reduced the rates on its fixed-rate mortgages by between 0.05 and 0.4 percentage points.
The article quotes Canstar data insights director Sally Tindall as stating the following on this move by ANZ:
Today's cuts from ANZ mean it now has the lowest one- and two-year fixed rates out of the big four banks, with rates starting from 5.39 per cent…
The bank has one eye on the possibility of cash rate cuts, potentially as soon as 20 May, and another on locking new customers in, using a relatively competitive fixed rate as the hook… Ultimately, this rate slashing is good news for borrowers
Tindale also posited that mortgage holders can probably expect additional cuts after May. Let's see what happens next Tuesday.
