Summary:
The key development of the week was the release of the Q1 CPI figure on Wednesday. Headline and trimmed mean core inflation are both finally back inside the RBA’s target band of 2-3%, albeit at the very upper end. Core inflation, the RBA’s more closely watched underlying measure of inflation, rose 0.7% for the quarter, 2.9% annualised. Headline inflation rose 0.9% for the quarter, 2.4% annualised.
Core inflation was broadly in line with RBA forecasts, but slightly above the expectation of market economists for underlying inflation of 0.6% for the quarter and 2.8% in annual terms. Headline CPI was expected to come in at 2.3%. So let’s just call it in-line. In response, Australia’s 10-year government bond yield held steady at 4.15%.
The market is 100% priced in for a May 20 25 bps cut and 56% probability of a jumbo 56 bps cut. Economists are also all in for May, but very few expect a jumbo cut. Economists, being more circumspect, state it is exceptionally likely but not a certainty.
Meanwhile, for the remainder of 2025, the market is price in a tad over four 25 bps cuts to 3.0% by year end and a terminal rate of 2.85 in 12-months by May 2026 – five 25 bps cuts. For economists, a May rate cut followed by two or three more this year is forming as the consensus view.
As noted in the AFR, “State Street Global Markets’ head of APAC macro strategy Dwyfor Evans, whose firm runs its own price monitoring data, says Australia hasn’t toppled its inflation issue, thinks the RBA has been deliberately noncommittal about cutting rates and think markets will have to wind back its pricing – that is, this spate of rate cuts isn’t coming in the forseeable future. “The disinflation story, it is not really there,” Evans says.” We couldn’t agree more.
A 2.85% can only justifiably be posited on an economic shock and which can only perceivable come from a persistence of Trump tariffs at circa current levels. And currently Trump is trying to reverse as quick as possible without losing face. But if we get an economic shock, then equities are looking risk and bond yields at current levels an attractive entry point.
Exhibit 1: Implied RBA Cash Rate Expectations
| Product | Interest Rate p.a. | Notes |
|---|---|---|
| AMP Saver Account | 5.20% | Min. monthly $1,000 dep. Limit $250,000. |
| ANZ Premium | 0.05% | $10,000 - $499,999 |
| ANZ Progress Saver | 4.10% | Make at least one deposit of $10 or more in a month, make no withdrawals (including transfers), or incur any fees, charges in the month. |
| Arab Bank Online Savings | 4.35% | On balances of $250,000 to $499,999 |
| Bankwest Hero Saver | 4.60% | On balances up to $250,000.99 with no withdrawals in that month |
| BOQ Fast Track Saver | 2.75% | $1000 minimum monthly deposit. On balances up to $250,000, over part the Base Rate of 0.05% p.a. applies |
| BoQ Bonus Interest Savings | 5.45% | Bonus interest is paid into your account when you limit your withdrawals to a maximum of one per month |
| CBA NetBank Saver | 2.35% | 2.40% p.a. fixed bonus margin for the first 5 months on your first NetBank Saver |
| CBA Goal Saver Account | 4.90% | At least 1 deposit required; balance at end of month must exceed balance at start of month. |
| Great Southern Bank | 4.30% | No bonus conditions |
| Heritage Online Saver | 3.45% | $1 or more, bonus intro rate 1.45% (promotional 4 month rate on new accounts up to $100,000) |
| ING Savings Accelerator | 4.70% | $150,000 and over |
| Macquarie CMA | 2.75% | Minimum $5,000 |
| ME Online Savings | 4.25% | Have both Online Savings Account and Everyday Transaction Account. On balances up to $250,000. Make at least four "tap & go" purchases per month. |
| NAB iSaver | 2.00% | Bonus rate 2.65% for the first four months when you open your first NAB iSaver account |
| NAB Reward Saver | 5.00% | make at least one deposit on or before the second last banking day of the month and no withdrawals during the month |
| Rabobank PremiumSaver | 5.35% | On balances to $250,000. Balance increased by $200 a month. |
| RAMS Saver Account | 1.40% | On balances to $500,000. Minimum $200 deposit each month with no withdrawals. |
| Suncorp Growth Saver | 5.05% | Minimum $200 deposit each month and no more than 1 withdrawal |
| ubank Save Account | 5.00% | 5.5% on first $100,000, 5.0% on next $150,000; applies only on amounts upto $250,000. Minimum $500 deposit each month into Spend or Save accounts. |
| Up Savers Account | 4.35% | Make 5 successful purchases using your Up or 2Up debit card or digital wallets in a month. |
| Westpac eSaver | 1.10% | 4.25% p.a. for the first 5 months for new Westpac eSaver customers |
| Westpac Reward Saver | 5.00% | Make a deposit to the account and ensure account balance is higher at the end of the month than the beginning. Keep your account balance above $0 at all times. |