Outlook for Australian Interest Rates: Predictions from Major Banks

The official cash rate hit its current level of 4.35% after the Reserve Bank of Australia (RBA) increased it by 25 basis points at its November meeting. The cash rate’s level has held steady since then, and with economists predicting that we may see rate cuts in late 2024, the key question is now when interest rate pain might start to ease for variable rate home loan borrowers.

The RBA’s stated aim for raising rates was to bring inflation in line with its target of 2-3%, and in what may be some good news for Aussies, the latest figures show inflation slowing. The latest consumer price index (CPI) figures show that it slowed to 3.4% in February, lower than the 4.9% in October and the lowest it has been December 2021.

With this in mind, those with a mortgage are probably wondering how long they may have to wait for rates to start falling again. The bank’s board will announce its next cash rate call on Tuesday May 19, 2024, but to get an idea of when the RBA may begin reducing the cash rate we look at what the big four banks are forecasting.

When do the big four banks think rates will go down?

ANZ: Late 2024

At this stage, ANZ economists believe that the cash rate has peaked at its current level of 4.35%, and they anticipate that the first rate cuts are likely to occur around November of this year, with a cut to 4.10%. They currently predict that rates will drop to a level of around 3.60% by mid 2025.

Commonwealth Bank: Late 2024

Commonwealth Bank economists believe that the cash rate has peaked at its current level of 4.35%, and they say the first cut is likely to occur around September of this year, with a reduction to 4.10%. They see rates eventually dropping to around 2.85% by the middle of 2025.

NAB: Late 2024

NAB economists predict that the current level of 4.35% will be the cash rate’s peak, and they also predict that the first cut is likely to occur in the December quarter of 2024, with rates lowering to 4.10%. They anticipate that the cash rate may reduce to 3.10% by the end of 2025.

Westpac: Late 2024

Westpac economists predict that the current level of 4.35% will be the peak of the cash rate, and that we might expect the first rate cuts to occur around September, with a cut to 4.10%. They predict that the cash rate will eventually settle at 3.10% in the September quarter of 2025.

While forecasts vary slightly among major banks, there is consensus that the current cash rate peak will be followed by rate cuts in late 2024. Homeowners eagerly await these anticipated reductions, hoping for relief from interest rate pressures. As the RBA's next cash rate announcement approaches in May, the market will closely monitor economic indicators for insights into future monetary policy decisions.