RBA's April Minutes Support Case for Faster Rate Cuts in 2025, Says ANZ Research

The Reserve Bank of Australia (RBA) held its cash rate steady at 4.1% in April 2025, but the minutes of its meeting and subsequent analysis from ANZ Research suggest a growing case for aggressive rate cuts as early as May. While the RBA emphasized caution amid global trade uncertainties, ANZ’s revised forecasts point to a potential “mega” 50-basis-point cut in May, followed by two additional reductions by August. This shift underscores a critical pivot in monetary policy expectations, driven by escalating U.S. tariff risks and softening inflation pressures.

The Catalyst: U.S. Tariffs and Global Trade Spillovers

The RBA’s April decision was framed by heightened geopolitical risks, particularly U.S. tariff policies targeting Australia’s biosecurity measures. While Australia’s direct trade exposure to the U.S. is limited, the RBA warned of indirect impacts: trade fragmentation, reduced global demand, and confidence shocks could shave 0.2% off GDP growth, with broader spillovers posing a larger threat. Analysts like Deloitte’s Pradeep Philip noted the RBA’s “dovish” tone, signaling preparedness to act if trade tensions escalate.

ANZ Research linked these risks to its upgraded forecast, arguing that the RBA may prioritize economic stability over inflation control in the near term. “The RBA has historically responded aggressively to external shocks,” said ANZ’s economists, citing the 2020 pandemic-era rate cuts as precedent. Their models now anticipate a 3.35% cash rate by August 2025, assuming three 25-basis-point cuts—with a 50-basis-point move in May—to counteract the anticipated drag on growth.

The Inflation Dilemma: Data-Driven Caution vs. Preemptive Easing

The RBA’s reluctance to cut rates in April stemmed from its dual mandate: anchoring inflation at 2–3% while monitoring global risks. Governor Michele Bullock reiterated that inflation remains “on track” but stressed that policy decisions will remain “data-dependent.” This cautious stance contrasts with markets, which priced in a 75% probability of a May cut after the April meeting.

ANZ’s analysis acknowledges the RBA’s inflationary concerns but argues that softening price pressures justify earlier easing. March quarter CPI data, due April 30, is pivotal: if headline inflation slips below 4%, the RBA may feel emboldened to act. Commonwealth Bank economists estimate a 3.8% CPI print for Q1, which would align with ANZ’s call for a May cut. However, the RBA’s February minutes emphasized that preemptive easing risks derailing inflation control—a caution that could delay action unless data weakens further.

Political Crosscurrents: Biosecurity Stance Complicates Trade Talks

The RBA’s dilemma is compounded by Australia’s political stance on U.S. trade tensions. Prime Minister Albanese and Opposition Leader Dutton jointly defended Australia’s biosecurity restrictions, which have drawn U.S. criticism. This bipartisan unity complicates tariff negotiations, leaving the RBA to navigate economic risks without policy relief from trade channels.

Market Reactions and Investment Implications

Equity markets have already priced in aggressive easing, with ASX 200 financial stocks rallying 4.2% in April on rate-cut bets. However, ANZ cautions that volatility could persist if CPI data surprises to the upside or trade tensions escalate.

Conclusion: The Case for Faster Cuts Grows, but Risks Remain

ANZ’s forecast hinges on two critical assumptions: a benign CPI print in late April and no further escalation of trade disputes. With the RBA’s May meeting just weeks away, the data will likely force a decision between inflation control and preemptive stimulus. Historical parallels suggest the RBA may err on the side of caution—cutting rates but at a slower pace than ANZ predicts. However, if global trade risks materialize, a May “mega cut” becomes increasingly plausible.

Investors should brace for heightened volatility ahead of the CPI release and the May meeting. Equity markets, particularly financials and rate-sensitive sectors, may continue to rally on easing bets, but downside risks persist if inflation remains sticky. For now, the RBA’s April minutes have set the stage for a pivotal policy shift—one that could redefine Australia’s economic trajectory in 2025.