S&P/ASX 200 Index (ASX: XJO) investors and mortgage holders alike will be keeping a close eye on the Reserve Bank of Australia's interest rate call tomorrow afternoon.
At 2:30pm AEST on Tuesday, the RBA will reveal its next rate decision.
The official Aussie cash rate currently stands at 4.10%.
If Australia's central bank does opt to cut interest rates tomorrow, it will mark only the second cut since November 2020, when the bank slashed rates to the historic low of 0.10% to, well, help spur inflation.
Ahem.
The first reduction since that time was only delivered on 19 February this year, when the RBA dropped the cash rate from 4.35% to the current level.
But with inflation (CPI) down under having dropped to 2.4% in 12 months to the March quarter, money markets are widely pricing in a 0.25% cut tomorrow. And some optimists are still holding out for a 0.50% easing.
Do consensus expectations have this right? Or will ASX 200 investors banking on an RBA interest rate cut tomorrow be left wanting?
Here's what the experts are saying.
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Will the ASX 200 catch RBA interest rate cut tailwinds tomorrow?
Compare the Market economic director David Koch pointed out the big financial impact that an RBA rate cut tomorrow would have. Not just for ASX 200 shares, but importantly for mortgage holders too.
He noted that a 0.25% interest rate cut would see someone with a $666,000 mortgage pocket an extra $106 a month, presuming their bank passed on that cut. Over a year, that's an extra $1,272 in household savings.
"Financial markets and economists are almost unanimous in believing there'll be at least a quarter percent cut in official interest rates in May. And, frankly, so there should be," Koch said.
Carl Ang, fixed income research analyst at MFS Investment Management, noted:
Expectations are strongly pointing towards a further 25bps cut… Economic data so far has ranged from broadly neutral to slightly soft in tone, like the flat real retail sales growth over the first quarter.
Looking ahead, Ang said, "For this RBA cutting cycle we expect further 25bps cuts each quarter and a terminal rate of 3.1% in early 2026."
Rob Talevski, CEO of Webull Securities, also believes ASX 200 investors will get the interest rate cut they've been waiting for on Tuesday.
"While the US Federal Reserve can justify higher rates against annual GDP growth of 2.4%, it's hard to see why Australia's central bank would want to curb the flow of credit into the Australian economy," Talevski said.
"The expectation of lower interest rates is already supporting equity prices, as the ASX marches back toward its all-time high seen in February this year," he added.
Josh Gilbert, market analyst at eToro, said that the impetus for the RBA to cut rates tomorrow has been rapidly fading.
"What looked to be a sure-fire cut, with some analysts even pricing in a supersized 50-point slash, is looking less ironclad with each passing day," Gilbert said.
He added:
Last week's ABS data revealed that the unemployment rate stayed at 4.1 per cent in April, but an 89,000 rise in employment broke right through expectations. This has obliterated any speculation of a 50bps cut and dragged the odds of a more restrained 25bps cut down slightly.
And we'll leave off with Warren Hogan, managing director of EQ Economics (courtesy of The Australian Financial Review).
Hogan joins the consensus forecast expecting an RBA interest rate cut tomorrow. But he cautions that might be all the rate help ASX 200 investors will get in this cycle.
According to Hogan:
The window for rate cuts is rapidly closing. We will probably get one this week but in the absence of a tariff-induced global shock, we are unlikely to see any more cuts after that. Indeed, the natural rhythm of the economic cycle suggests rate increases could be back in play before too long.
Stay tuned!
