Bendigo Bank’s chief economist David Robertson said he now expected the central bank to shift its “laser sharp focus on inflation” to other areas of the economy.

“The RBA has been dealing with global inflation shock for three years but its concerns are quickly moving from price stability and inflation to protecting growth and jobs,” Robertson said.

While yesterday’s RBA’s headline inflation figure remained unchanged at 2.4 per cent, the trimmed mean, the Reserve Bank’s favoured measure of core or underlying inflation, has slowed from 3.3 per cent to 2.9 per cent – putting it back in the target range for the first time since December 2021.

The inflation data had set the scene for a May rate cut, Robertson said in his latest economic update, the only question was a matter of by how much.

“The next cut is almost certain for May 20, but of what magnitude?” he said.

“We have four more cuts, including May, in our forecasts taking the rate down to around 3.1 per cent, a drop of 25 basis points per quarter.

“Meanwhile, the markets are now factoring in five rate cuts to around a 2.8 per cent level by year-end. It’s a deeper path than previously expected.”

While the RBA could ease rates quickly if global conditions suddenly worsen, Robertson said this looked like an unlikely course of action for the moment.

“A larger 50 basis point cut in May is most unlikely unless markets become dislocated like in the GFC, which isn’t currently visible, but a 35 basis point cut from the RBA in May would round out the cash rate to more convenient fractions.”

Global markets were facing extreme turbulence in the face of uncertainty over US President Donald Trump’s global tariffs, despite the latest exemptions and deferrals, he said.

“Equity markets have been clawing back some of their losses but there are still difficult times ahead,” Robertson said.

“Tariffs are generally bad for everyone but especially problematic for the country imposing them. So with the escalation between the US and China – the world’s two largest economies – it’s a question of just how much slower these economies will be growing this year and next.”

The International Monetary Fund (IMF) now forecasts US growth will reduce by a third to 1.8 per cent this year, and China’s GDP growth is projected at 4 per cent (down from 4.6 percent).

Australia has not been immune from the tariff turbulence, with local growth rates also downgraded. 

“The IMF has downgraded Australia’s expected growth rate from 2.1 per cent to 1.6 per cent, and similarly we have reduced our forecast growth rate from 2.4 per cent to 2 percent in 2025, given the lower global growth profile ahead,” Robertson said.