Aussie mortgage holders have been dealt more than a year of interest rate pain from the Reserve Bank (RBA), but there could be some relief on the horizon.
The OECD now expects the cash rate will stay on hold at 4.35 per cent until at least the third quarter of next year. From there, it expects the RBA will start gradually cutting rates by a total of 0.75 per cent, bringing the cash rate to 3.6 per cent by the end of 2025.
The Paris-based organisation is also expecting inflation to moderate, helped along by easing global inflationary pressures, and said it would drop to the RBA’s target of 2-3 per cent by early 2025. This is earlier than the RBA’s late-2025 forecast.
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Australia’s annual inflation rate eased to 4.9 per cent in October, down from 5.6 per cent in September. This was faster than economists had expected and will come as good news ahead of the RBA’s December meeting next week.
All of Australia’s Big Four bank economic teams believe the cash rate will hold on Tuesday. CBA, Westpac and ANZ believe the cash rate has peaked for the current cycle, with just NAB predicting another hike early in the new year.
Borrowers told ‘don’t let your hair down’
Despite the positive inflation figures, RateCity research director Sally Tindall warned borrowers not to “let their hair down over summer”.
“Monthly CPI is now moving back in the right direction, but the last two sets of results have shown us just how quickly bumps in the road can spring up,” Tindall said.
“Most households haven’t begun paying for the November rate hike, which is likely to start coming out of their bank accounts from the new year.”
On top of this, Tindall said there was still a possibility the RBA could decide to hike rates at its first meeting of 2024 in February, “particularly if it looks like people have been letting the purse strings go over summer”.
If this was to happen, a borrower with a $500,000 loan size would have to pay an extra $76 per month on their mortgage - $1,286 per month more than they were paying in May 2022.
“If you’ve got a mortgage, plan for at least one more hike. If it doesn’t happen, then you’ll be able to put that extra cash back into your loan,” Tindall said.
Economic outlook for 2024
Australia was heading into a sluggish year, the OECD said, with GDP growth forecast to slow from 1.9 per cent in 2023 to 1.4 per cent in 2024. It is then tipped to recover to 2.1 per cent in 2025.
High interest rates and cost-of-living pressures are expected to dampen spending by households and businesses next year.
“Continued strong working-age population growth and higher exports - as foreign student arrivals further recover - will partly offset these headwinds,” the report noted.
The unemployment rate - currently 3.7 per cent - is also expected to rise moderately, reaching 4.4 per cent by mid-2025.