When will Interest Rates Go Down?

When Will Interest Rates Go Down?

If you’re a homeowner or potential buyer, you’re probably keeping a close eye on interest rates, hoping for a hint of relief from the Reserve Bank of Australia (RBA). After a stretch of rate hikes, the official cash rate now sits at 4.35%, with the RBA implementing its latest increase of 25 basis points in November 2023. Since then, the cash rate has stayed put, but the big question remains: will rates finally go down in 2024 or 2025?

To get to the bottom of it, let’s look at what the experts are saying, especially given the recent economic indicators, including those promising employment numbers. If you’re wondering when your mortgage repayments might ease up, let’s dive into the forecasts from Australia’s major banks and consider what might be on the horizon.

It’s All About the Employment Numbers

Recently, we saw a stronger-than-expected performance in Australia’s job market, with employment rising by 3.1% over the past year. The participation rate—the proportion of people in work or actively seeking employment—also reached a record high of 67.2%. That’s great news for job seekers, but it also means that, with the economy proving resilient, the RBA might feel less urgency to reduce rates anytime soon.

According to David Bassanese, chief economist at Betashares, these robust employment numbers provide a degree of comfort to the RBA. Speaking to the Australian Financial Review, he suggested that the central bank would likely want to see a “decent decline in inflation” before cutting rates, rather than needing to respond to economic weakness. In other words, it’s more likely the RBA will play a waiting game rather than cut rates at the first sign of slower inflation.

What Are the Major Banks Predicting?

Economists at the big four banks have all put forth predictions about when we might see the cash rate drop, and they’re generally in agreement that cuts aren’t expected until early 2025. Let’s go through each bank’s forecast to see what they’re saying.

ANZ: Early 2025

ANZ’s economists believe the cash rate has peaked at 4.35% and expect the first rate cut to come in February 2025. ANZ feels confident that the RBA will be cautious, letting the economy settle before taking any action. For homeowners, this means that any relief is likely still several months away.

Commonwealth Bank: Early 2025

Commonwealth Bank is on the same page as ANZ, predicting a rate cut around February 2025. Like their peers, they see the current cash rate as the high point and expect that inflation will need to ease significantly before the RBA moves towards any reduction.

NAB: Early 2025

NAB’s outlook also sees a rate cut on the horizon for February 2025, although they initially predicted that cuts might not come until May. With steady employment figures and inflation showing signs of stabilisation, NAB adjusted its timeline, bringing forward its expected rate cut to align with other major banks.

Westpac: Early 2025

Westpac rounds out the forecasts with a similar projection, predicting that the RBA’s cash rate will hold at 4.35% through the rest of 2024, with the first rate cut in early 2025. Westpac’s economists agree that February is the most likely timeframe, signalling that they too expect inflation to come down by then.

So, while the banks differ in their predictions by a few months here and there, they share a general consensus: 2024 is likely to be a year of steady rates, with potential cuts arriving in early 2025.

The RBA’s New Meeting Schedule

Another key piece of this puzzle is the RBA’s new meeting schedule for 2024. The bank’s board previously met monthly (excluding January), but starting in 2024, they’ve shifted to eight meetings a year, each lasting two days. This change is designed to give the board more time to deliberate on complex economic data and make thoughtful decisions. Here are the key dates for the RBA’s meetings in 2024:

• February 5-6
• March 18-19
• May 6-7
• June 17-18
• August 5-6
• September 23-24
• November 4-5
• December 9-10

The next rate decision will be announced on December 10, 2024. While this new schedule means fewer opportunities for rate adjustments, it also suggests that each decision will be more thoroughly considered.

What Does This Mean for Mortgage Holders?

Now, what does this mean if you’re holding a mortgage? With rates unlikely to drop until early 2025, you might still face a bit of pressure in the short term. Mortgage holders with variable rates will continue to feel the pinch, especially if their current rates reflect the RBA’s recent hikes. Those with fixed-rate mortgages may find themselves re-evaluating their options as their fixed terms come up for renewal in the next year.

In the meantime, it’s a good idea to review your finances and perhaps speak to your mortgage broker to ensure you’re making the most of any available options. Whether it’s refinancing, consolidating debt, or simply cutting back on discretionary expenses, there are ways to manage the impact of higher rates until relief finally arrives.

Patience Is Key

Overall, while 2024 may not bring immediate rate cuts, the outlook for early 2025 appears promising. The job market is steady, inflation is on its way down (albeit gradually), and the major banks are united in their expectations of early 2025 cuts. For now, patience is key, but at least we have a bit of clarity on what’s likely ahead.

Stay tuned for the RBA’s December announcement and keep an eye on those inflation figures. The more inflation cools, the closer we may be to seeing some relief on rates. Until then, taking a proactive approach with your mortgage could help you navigate these higher-rate waters just a little more comfortably. Annette is always happy to answer any questions you may have about your mortgage.