Several economic indicators have increased the pressure for rate cuts. The recent Q1 national accounts revealed a mere 0.2% growth in GDP, which was significantly lower than the RBA's forecasted 0.45%. Additionally, real per capita GDP saw its ninth decline in eleven quarters, dropping by 0.2% in Q1 2025. This was accompanied by a marginal 0.1% rise in consumer spending for April and a 0.2% reduction in total job numbers over the first quarter.
Prominent economist Warren Hogan of EQ Economics, known for his hawkish stance on interest rates, has shifted his view. He now advocates for a more aggressive reduction, suggesting a 35 basis points cut to 3.5% in July. Hogan noted that consumer spending had shown potential for recovery at the end of 2024 but has struggled in 2025 despite rising disposable incomes.
Market projections indicate that the OCR could see three more reductions, each of 25 basis points, bringing the rate to 3.10% by the end of the year. If realized, this would mean a total decline of 1.25% within a single year.
The anticipated cuts carry both benefits and drawbacks. While easing monetary policy could stimulate economic activity, it risks further inflating the housing market, exacerbating affordability issues. In the current economic climate, Australia faces the challenge of balancing a high-demand housing market with a sluggish economy.
