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Interest rates cuts: 'Crying' Aussies trapped in backseat of RBA's car - so are we there yet?

While May probably won’t see the end to this long and painful rate-cycle road trip, it may be the month we see the light at the end of the tunnel.

The consensus is we’re on the road to interest rate cuts. The Reserve Bank of Australia (RBA) is in the driver’s seat and Aussie homeowners are the kids in the back crying, “Are we there yet?”.

We all want the answer but, right now, I think it’s fair to say we’re held up in heavy traffic.

The problem is that, while we have seen some good progress on inflation, it’s been pretty slow going. And the RBA needs to be sure that, when they reach their 2-3 per cent inflation target range, it can be sustained at those levels.

David Koch on a background of money and chart showing interest rate movement
More interest rate moves have been decided in the month of May than any other time, Compare the Market economic director David Koch said. (Getty/Supplied)

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We missed a cut in March and, under the RBA’s new schedule, we have six more chances and the next isn't until May.

So, what are the chances we could actually see some movement then?

Well, as Compare the Market economic director, I‘ve been looking back at the records, and more interest rate moves have been decided in May than in any other month of the year. It’s an interesting bit of monetary policy trivia.

Indeed, the start of the current rate-hike cycle started two years ago, in May 2022.

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Chart showing historical movements in RBA interest rates by month.
Chart showing historical movements in RBA interest rates by month. (Supplied)

We don’t know exactly why this is. It could be that May presents the last chance before the close of the financial year to change the pace of economic growth.

May is also typically when we see the release of the federal budget.

Also by David Koch:

The RBA considers a whole range of economic data when it decides whether to drop, hold or hike the cash rate and, by May, it will have seen CPI data from the March quarter of 2024.

So, could we see another May move?

The country’s top economists say it’s unlikely we’ll see a cut until the second half of the year. Westpac and CommBank are the most bullish of the Big Four but even their forecasts suggest we won’t see a move until September.

But behind the scenes, many banks have actually started pricing future rate cuts into their four-year fixed rates. They wouldn’t do that if they weren’t confident they’d start to drop soon.

When do the Big Four banks think interest rates will come down?

ANZ

One cut in November

Westpac

Two cuts starting in September

NAB

One cut in November

Commonwealth Bank

Three cuts starting in September

Up until recently, traders were predicting the United States Federal Reserve would make its first move to lower rates in May.

In January, the US saw inflation lift just 3.1 per cent - an improvement on the previous month. But February saw an unexpected lift to 3.2 per cent, which has thrown previous forecasts into question.

While there’s no guarantee the RBA will follow, a move from the Fed could be a positive sign of where rates are headed here.

So, while May probably won’t see the end to this long and painful rate-cycle road trip, it may be the month we see the light at the end of the tunnel.

When will the Reserve Bank make rate decisions in 2024?

  • May 6-7

  • June 17-18

  • August 5-6

  • September 23-24

  • November 4-5

  • December 9-10