Key Takeaways
- Equity Markets across the world bounce back as tariff fears subside.
- Interest rates falling though perhaps not at the pace initially expected.
- Property holding up, despite less stock on market, some cautious optimism ahead.
May 2025: Rate Decision, Property & Economy
Welcome to May. The RBA announced its third decision for 2025, cutting the official cash rate by 0.25% to 3.85%.
Money markets were expecting a second interest rate cut, with the Federal election done and some evidence that inflation is sustainably returning to its 2 to 3% target. So this result was not a surprise, though we know the RBA has a history of unpredictability.
There are still recessionary fears of a weakening in the US economy, though parts of Europe and other emerging factors are showing signs of optimism.
The world waits a little to see what direction that gives.
Election Comes & Goes, Tariffs Moving
The election certainty was a plus for those seeking a direction on political conditions. There is minimal economic impact from the election outcome as both parties were pursuing similar fiscal policies, with little change expected in direction.
The market will absorb the impact of all proposed economic policy and whether the sustained level of Government spending will continue remains to be seen. They will be aware of the extent of the private sector to pick up the slack. Lower rates will help that cause.
Employment Data
April 2025 wage data showed annual pay growth accelerating to 3.4%, up from 3.2% in the first quarter of 2025. This was above market forecasts of 3.2%, and surprised markets a little.
The Australian economy added 89,000 jobs in April, which was well in excess of the forecast of 20,000. Unemployment is a key economic risk; as it changes, economic conditions could react significantly and quickly.
RBA Positioning
With the last decision at the April 2025 meeting, the RBA commentary played a consistent tune.
There was mention of inflation and caution ahead: "Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. Nevertheless, the Board needs to be confident that this progress will continue so that inflation returns to the midpoint of the target band on a sustainable basis. It is therefore cautious about the outlook."
Shares & Markets
The All Ordinaries market showed black ink and the last week or so has seen a bullish run. This was in part expected given the anticipation of future interest rate cuts but more broadly based on optimistic global conditions.
More than ever, while we look at macro data here, there are significant swings within and across industries, so for those invested it pays to look beyond the headlines. Equity markets are historically unreliable predictors of future economic events, including recessions.
Equity Markets Worldwide
The negotiations on trade tariffs between the US and China gave markets substantial confidence. Gold was off its bull run (6% down this month, though still 30% up over the year). Black ink everywhere as a result.
|
Country |
Mark |
1 Month |
6 Months |
1 Year |
5 Years |
|
Australia |
All Ords | 7.1% | 0.3% | 5.5% | 52.9% |
|
Germany |
Dax | 11.6% |
23.8% | 26.6% | 114.6% |
|
Japan |
Nikkei Dow | 8.9% |
-1.2% | -3.4% | 85.1% |
|
UK |
FTSE |
4.3% |
7.1% | 3.1% | 44.9% |
|
USA |
Dow Jones |
8.9% | -1.7% |
6.6% | 80.9% |
|
Average |
8.2% | 5.7% | 7.7% | 75.7% |
The negotiations on trade tariffs between the US and China gave markets substantial confidence.
The US market was able to move past a downgrade in its credit ratings from Moody's to Aa1. Moody's said, “While we recognise the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics”.
Since recent lows, the US has been able to recoup most of the $US10 Trillion on value that was lost. Other markets have followed with stronger gains, with Germany for example, outstripping US long term performance. Lower interest rates, relative energy price control, and long term outlook for their capabilities are all factors in this rise.
Direction for Local Interest Rates?
Only minor changes in the period regarding future rate trends. There are consistent expectations for rate falls over the next 12 months with the view that the RBA will need to take stronger action.
As a result, the graph shows steady falls priced in for the ASX Cash Rate Futures.
As always, this will change quickly if expectations are not met along the way.
Interest Rates Worldwide
The story of central banks worldwide is still mainly on easing rates. This was led by more moves from NZ, Canada and the UK central banks. The US is adopting a wait and see approach.
New Zealand's central bank cut its official cash rate by 25 basis points in April 2025, bringing it to 3.50%. This follows a series of cuts totalling 200 basis points since August 2024. It continues its baseball bat stance on monetary policy.
The U.S. Federal Reserve again held interest rates at their current level of 4.25%. for the third consecutive meeting in 2025, citing persistent inflation above the 2% target and increased economic uncertainty, including tariffs and global trade tensions. Markets still anticipate around 50 basis points of cuts by the end of 2025, though the timeline for these cuts has shifted later in the year, following Chair Jerome Powell's "wait-and-see approach", noting that the Fed is not in any hurry to move.
In the UK, The Bank of England cut its base rate to 4.25% from 4.50% in May 2025, marking the fourth cut since August 2024. Inflation remains above target, but is trending downward. The sentiment has changed, as this time the decision was split to an easing bias, with some favouring a larger reduction.
Canada continued its easing cycle, with a cut to 2.75%. Forecasts from markets expect further reductions, potentially reaching 2.25% by the end of 2025 with a focus to support growth amid global trade uncertainties.
Central Bank Cash Rates
Before posting any changes today, we compare central bank cash rates and their longer term 10-year bond yields.
There is not a lot of volatility this time around though more at the longer end. We continue to see a return to more normal yield curves with the US an outlier of major economies.
|
Country |
Cash Rate | 10 Year Bond | Spread |
|
Australia
|
3.85% | 4.47% | 0.62% |
|
Canada
|
2.75% | 3.18% | 0.43% |
|
China
|
3.10% | 1.67% | -1.43% |
| Germany | 2.40% | 2.60% | 0.20% |
| India | 6.00% | 6.32% | 0.32% |
| Japan | 0.50% | 1.45% | 0.95% |
| New Zealand | 3.50% | 4.61% | 1.11% |
| UK | 4.25% | 4.66% | 0.41% |
| USA | 4.50% | 4.44% | -0.06% |
| Average | 3.43% | 3.71% | 0.28% |
Local Money Markets
Australia’s longer-term interest rates continue be volatile. The 10-year rate was a yo-yo which shows the fragility of the market over the last weeks. If we get rate falls as expected, it will be interesting to see what the size of the stretch will be in Australia's yield curve.
The stronger economic data in May (employment) saw bond yields rise on reduced expectation of the extent of rate falls.
Residential Property Performance
The latest residential monthly property results from CoreLogic (see table below) rose by 0.3% overall in April. The 25 point rate cut in February stimulated the market to a degree, though with other economic uncertainty this has clearly stifled the momentum.
| Location | Month | Quarter | Annual |
|
Adelaide
|
0.3% |
0.9% |
9.8% |
|
Brisbane
|
0.4% |
1.0% |
7.8% |
|
Hobart
|
0.9% |
0.9% |
0.5% |
|
Melbourne
|
0.2% |
1.0% |
-2.2% |
|
Sydney
|
0.2% |
1.0% |
0.9% |
|
Perth
|
0.4% |
0.7% |
10.0% |
|
All Capitals
|
0.2% |
1.0% |
2.6% |
|
All Regionals
|
0.6% |
1.5% |
5.3% |
Property Trends
The super break over Easter and ANZAC day meant a slowdown in buying and selling activity which was evident in auction results.
The next few months will be telling in terms of the motivation of buyers and sellers alike.
There are very early signs that the tough conditions in the broader commercial property market are easing. We await for more data to come in the following months.
Business Conditions
Traditional measures such as The NAB Business Confidence Index and Roy Morgan’s Business Confidence Index have been stagnant of late, with both still below long term averages.
Anecdotally, forward-looking sentiment is patchy, with a drop in expectations for business conditions over the next year.
ATO Changes
There is a significant change to the ATO’s General Interest Charge. From July 1, 2025, interest charges on tax debt will no longer be tax-deductible.
This change will act as a further disincentive for business to use the ATO as a "banker". Read more on this ATO change in our latest blog, including the impact for business.
Currency Wrap-Up
The Australian dollar was strong against the USD and the Yuan over the last month. Though the headlines are misleading - there is red ink everywhere else and it is weak over the year, despite our relatively high interest rates. There are several factors of influence, including weak Chinese growth and industrial activity, and demand for key Australian exports like iron ore and coal. The prices for these commodities have fallen materially over the year.
The Aussie dollar does have underlying support, but more volatility should be expected in the near term.
| Country | Type | $1 AUD Buys | Period Change | Year Change |
| Canada | Dollar | 0.90 | -0.4% | -1.8% |
| China | Yuan | 4.57 | 1.2% | -2.4% |
| Eurozone | Euro | 0.58 | -1.9% | -6.7% |
| Japan | Yen | 94.2 | -1.4% | -9.8% |
| New Zealand | Dollar | 1.10 | -0.8% | -0.4% |
| UK | Dollar | 0.49 | -1.2% | -8.6% |
| United States | Dollar | 0.64 | 1.8% | -4.4% |
2025 RBA Policy Announcement Dates
We hope you enjoyed our third Economy & Property Insights post for 2025, thanks for reading.
Monetary Policy Announcements will be made at 2.30pm on the following Tuesdays in 2025:
• 8 July
• 12 August
• 30 September
• 4 November
• 9 December
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