Here’s what Westpac says the RBA will do with interest rates next week

Next week will be a very big one for Australian homeowners. That’s because the Reserve Bank of Australia (RBA) is scheduled to meet once again and decide on interest rates on Tuesday.

The share market appears convinced that inflation is now under control and that the central bank will elect to cut the cash rate by 25 basis points to 3.85%.

Though, some even believe the scene is set for a supersized 50 basis points cut from the central bank to 3.6% at Tuesday’s meeting. But is that actually going to be the case?

Let’s see what the economics team at Westpac Banking Corp (ASX: WBC) is saying will happen next week when the RBA meet.

Westpac gives its verdict on the RBA and interest rates

Westpac’s chief economist, Luci Bell, believes the RBA will almost certainly cut rates by 25 basis points.

In the bank’s latest weekly economic report, her team said:

Westpac anticipates the RBA Monetary Policy Board will deliver a 25bp rate cut at its May policy meeting, taking the cash rate from 4.10% to 3.85%. All measures of inflation are now firmly within the RBA’s 2-3% target band.

Policy settings are still weighing on the consumer, as evinced by pessimistic sentiment and slow growth in spending. As such, some further easing in these restrictive settings is warranted, particularly given the more unsettled and threatening global backdrop. The staff’s updated forecasts, alongside the Board’s framing of risks to the domestic and global outlook, will be a key focus.

What are the odds of a supersized cut?

Westpac’s forecast is largely in line with what the market is expecting. While cash rate futures indicate that there is scope for a supersized cut, the odds of that are roughly 50:50.

At the time of writing, the ASX 30 Day Interbank Cash Rate Futures May 2025 contract is trading at 96. This indicates a 51% expectation of an interest rate 50 basis points decrease to 3.6% at the next RBA Board meeting.

What’s next?

Westpac’s economics team believes that there will be two more interest rate cuts before the end of the year.

This will leave the cash rate at 3.35%, which is where the bank believes it will remain until at least June 2027.

All in all, this is good news for homeowners and borrowers, which are likely to have some more relief in the very near future.