The RBA interest rate is an integral factor for the ASX share market, the Australian property market, Australian bonds, term deposits, savings accounts and more.
What happens with official cash rate has widespread impacts on various parts of the economy. So, it was big news when the Australian central bank decided to reduce the rate by another 25 basis points to 3.85% in its May meeting.
ASX share market investors, borrowers and prospective property buyers may be wondering how low the RBA interest rate could go in the coming 12 months.
Multiple economists have given their view on the situation. Since as I'm an ASX investor, I'm going to consider the views of exchange-traded fund (ETF) provider BetaShares' chief economist David Bassanese. BetaShares is the provider of ETFs like BetaShares Australia 200 ETF (ASX: A200) and Betashares Nasdaq 100 ETF (ASX: NDQ).
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Further RBA interest rate cuts expected
The BetaShares economist noted that, due to the US tariff situation, the RBA considered a 50 basis point (0.50%) rate cut. However, since the US began the process of negotiating trade deals with major trading partners, fears of a US recession have eased.
Bassanese noted that a key factor for the rate cut was that underlying inflation has fallen back into the RBA's target inflation band rate was 2% to 3%, rather than a sudden fear for the growth outlook.
In the 2025 first quarter, Consumer Price Index (CPI) annual trimmed mean inflation fell to 2.9% from 3.2% in the three months to 31 December 2024. Recent US tariff concerns only strengthened the case for a rate cut.
The BetaShares Chief Economist is expecting annual underlying inflation to ease in the coming months, to the "mid-point of the RBA's 2-3% target band". The RBA expects annual inflation to reach 2.6% in the three months to 30 June 2025 and remain there over the next year.
If that happens, Bassanese expects the following:
If so, this should allow the RBA to cut the official cash rate further toward a more normal or neutral level. I consider a neutral level to be around 3%, allowing for three further rate cuts up until early next year – from 3.85% to 3.10%.
Barring an upsurge in global or local economic growth concerns, the RBA may likely cut rates following each of the next few CPI reports. This is providing these confirm a further easing of inflation in line with the RBA forecasts.
Could US tariffs cause more reductions?
The economist is expecting most countries to face a US tariff rate of 10% following trade deals. Agreements "should be enough to avoid the US tumbling into a serious recession". But, if the US does fall into recession, the RBA "could easily cut rates into expansionary territory – as far as 2% or even lower."
If that happens "the RBA would likely not need to do more than cut interest rates back to a more neutral level by early next year."
It will be interesting to see what happens with RBA interest rate cuts in the coming months, but it seems the economic experts are expecting multiple cuts in the next 12 months. This could be generally supportive for the ASX share market.
