Yahoo Finance RBA interest rates: Major banks’ prediction ahead of Tuesday decision
Commonwealth Bank, Westpac, ANZ and NAB are divided on when the RBA will start cutting interest rates and by how much.
The Reserve Bank of Australia (RBA) is expected to hold the cash rate steady at 4.35 per cent when it meets on Monday and Tuesday. Many homeowners are now anxiously awaiting interest rate relief and the Big Four banks are divided on exactly when it will come.
Australia’s unemployment rate remained steady at 4.2 per cent in August, dampening hopes for an interest rate cut in the short term. Australia’s biggest bank, Commonwealth Bank, is still hopeful the RBA will cut rates this year but has pushed its forecast from November to December.
All economists and experts surveyed for Finder’s Cash Rate Survey expect the RBA will hold interest rates at its September meeting.
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When do the Big Four banks think interest rates will drop?
Commonwealth Bank expects the RBA to cut rates in December 2024. It thinks there will be five 0.25 per cent cuts by the end of 2025, taking the cash rate to 3.10 per cent.
Westpac thinks there will be a cut in February 2025, with four 0.25 per cent cuts in total to bring the cash rate down to 3.35 per cent.
NAB thinks it will be in May 2025, although it says February is possible, with five 0.25 per cent cuts down to 3.10 per cent.
ANZ has forecast a February 2025 cut, with three cuts in total to bring the cash rate down to 3.60 per cent.
Markets are pricing in four interest rate cuts within the next 12 months, with the first 0.25 per cent predicted in February 2025.
Canstar calculated that if four cuts take place in 2025, an owner-occupier paying principal and interest with a $600,000 debt and 25 years remaining would see their repayments drop by $357 by the end of the year.
Over the next 15 months through to the end of 2025, they would pay $2,846 less interest to the bank compared to there being no cuts.
What has the RBA said?
RBA governor Michele Bullock has repeatedly told borrowers not to expect an interest rate cut in the “near term”.
The September meeting comes hot on the heels of the US Federal Reserve cutting interest rates by 0.5 per cent, its first interest rate cut in four years.
Bullock previously said the bank wouldn't be swayed by other nations cutting rates.
"At the moment, interest rates in the United States are higher than us. We've been criticised for that, in fact," she said in August.
“But we've chosen... very deliberately to try and bring inflation down while not turning the economy into a recession and spiking unemployment.”
Last week, RBA assistant governor Sarah Hunter noted the labour market was “operating above full employment”, which is the maximum level of employment needed for low and stable inflation.
What are other experts predicting?
More than two-thirds of economists and experts surveyed by Finder expect to see the first rate cut in the first three meetings of the next year, with 44 per cent predicting the first cut will come in February.
"Short of substantially higher unemployment, lower underlying inflation or a financial shock the RBA is likely to remain on hold in the next few months as it still sees too much excess demand and inflation,” AMP chief economist Shane Oliver said.
“But easing demand, employment and inflation are likely to drive rate cuts from February."
Economist Saul Eslake said he has long thought the RBA will leave rates unchanged during 2024 and will “not start cutting them till February 2025 at the earliest”, irrespective of what other central banks do.
Eslake said the RBA has “opted to tolerate inflation being above their target band for longer” than their peers to “preserve as much as they could of the gains made in reducing unemployment and under-employment during 2021 and 2022”.
“Having not put interest rates up as much as their peers, inflation hasn't come down as quickly but unemployment hasn't risen as much as in the US, UK, Canada and NZ - so rates won't come down by as soon or as much as in those countries,” he said.
The RBA decision will come at 2:30pm Tuesday, followed by a press conference with Bullock.
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