Australian Bond Exchange Weekly Update
30th May 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) lowered the cash rate by 25 basis points to 3.85% p.a. Headline inflation held steady at 2.4% year-on-year in April, while core inflation (which excludes volatile items) edged higher to 2.8%.
- United States: The Federal Reserve held its target cash rate steady at 4.25%–4.50%p.a. April’s headline inflation came in at 2.3% year-on-year, while core inflation (excluding food and energy) rose 2.8%.
- United Kingdom: The Bank of England (BoE) reduced its Bank Rate by 0.25% to 4.25%p.a. The April inflation for April rose to 3.5%, up from 2.6% in March.
- Eurozone: The European Central Bank (ECB) lowered interest rates by 0.25% to 2.25%p.a. Inflation in March moderated to 2.2%, down slightly from 2.3% in February.
Market Insights
- Australia’s inflation remained steady at 2.4% pa.
- US and EU trade tensions taking a pause.
- French CPI surprises to the downside
Australia’s inflation remained steady at 2.4% pa. for April
Australia’s April inflation rate remained steady at 2.4% year-on-year which was unchanged from the previous month and slightly above the anticipated 2.3%. This figure aligns with the Reserve Bank of Australia’s (RBA) target range of 2–3%, indicating that inflationary pressures are under control. Core inflation, excluding volatile items, edged up slightly to 2.8% from 2.7% in March, remaining within the RBA’s target range. This suggests that underlying inflationary pressures are contained. Despite the slight uptick in inflation, the RBA is poised to provide interest rate relief as early as July. Markets have priced in a 71% probability of a quarter-point cut at the July 7–8 RBA meeting, potentially lowering the cash rate to 3.6% down from currently 3.85%.
US and EU trade tension
The U.S.–EU trade tensions have escalated, with President Donald Trump threatening to impose a 50% tariff on European Union (EU) goods starting June 1. This move has prompted significant concern across Europe and global markets.
Following a call between President Trump and European Commission President Ursula von der Leyen, the U.S. has postponed the 50% tariff until July 9, 2025, to allow more time for negotiations
French CPI surprises to the downside
In Europe, French CPI surprised to the downside (-0.2% mom for EU harmonized measure, 0.3ppt below consensus). Banque de France Governor Villeroy de Galhau spoke following the softer inflation numbers and stated that it was a very encouraging sign according to headlines in Bloomberg. The President of the Deutsche Bundesbank, Joachim Nagel also commented that the 2% inflation target is in reach but wouldn’t be drawn on whether that means a possible rate cut in June (the market already has a 25bp cut priced in).
*Data accurate as at 30.05.2025
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