Reserve Bank of Australia (RBA) Governor Michele Bullock said she “certainly didn’t give any impression” of an interest rate cut in 2024 when the cash rate was held at 4.35 per cent in May. But earlier this year, the big four banks were all predicting one this year.
Then, slowly, the dates started to push back. From September to November.
Sadly, last week ANZ decided hope was lost for 2024.
Economists there don’t think interest rates will come down until February of next year.
These adjustments don’t tend to come all at once but rather fall like dominoes as new financial data comes to light.
Commonwealth Bank (CBA), Westpac and NAB could still change their predictions.
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When do the big four banks think interest rates will drop?
Currently, they still have November locked in as the first 25 basis point cut to the cash rate.
But how far do they think it will go over the next two years?
ANZ is the only outlier, predicting just three cuts to bring the cash rate to 3.60 per cent.
The other three think there will be five cuts, landing the cash rate at 3.10 per cent by December 2025.
The difference in outcomes is huge for mortgage holders.
RateCity has done an analysis based on a $500,000 loan with 25 years remaining.
If ANZ is right, there will be a $223 drop in monthly repayments by December 2025. That would put a borrower’s interest repayments over the next 18 months at $45,120.
If the others are right, that could be a $368 monthly saving, pushing the total interest paid to $43,576 over the same period.
Just a couple of digits change for forecasters, could be a $1,544 interest change for you.
Will the RBA drop interest rates in the June meeting?
CBA head of Australian economics, Gareth Aird, said the central bank’s board has a “straight-forward” decision: hold the cash rate.
Economists widely agree with him.
“The RBA puts much more weight on the quarterly CPI than the monthly CPI indicator,” Aird said.
“As such, we consider the next potentially ‘live’ meeting to be the August Board meeting (to be held the week after the Q2 24 CPI prints).
Some economists are expressing concern the latest bout of cost-of-living pressure could have a negative impact on inflation.
The government said paying the energy rebate directly to providers, instead of as a cash handout, meant they would help bring inflation down.
Bullock was quite neutral about it. noting it could have “a material impact on reducing (underlying) inflation, but it is also unlikely to make inflation worse”.
But Harry Murphy Cruise, from Moody’s Analytics, said that’s a gamble.
“It will all depend on how much of the energy rebates gets spent, and how much gets squirrelled away into savings,” he said.
“If they’re spent, it would add to demand at the exact same time the RBA is trying to take it out, adding to underlying inflation even if the headline figure comes down.
“What’s more, the rebate comes at the same time as a slew of similar rebates from state governments and the reworked stage-three tax cuts, which are set to hand the average worker a tax reduction of $1,500.”
The RBA decision will come at 2.30pm Tuesday, followed by a press conference with Bullock.