Predicting the winds of change: Aussie banks eye rate cuts

By Our Reporter

As Australia navigates its way through an economic landscape marked by rising interest rates and inflationary pressures, the nation’s major banks and leading economists are forecasting a shift in the monetary winds. The Commonwealth Bank of Australia (CBA), Westpac, National Australia Bank (NAB), and ANZ have released their predictions for rate cuts, indicating a significant easing in the Reserve Bank of Australia’s (RBA) stance starting from the latter half of 2024.

The CBA is setting its sights on September 2024 as the starting point for rate reductions. Currently, the cash rate stands at a peak of 4.35%, but CBA anticipates this will begin to drop with three rate cuts over the course of the year, bringing the rate down to 3.6% by the end of 2024. The outlook continues into 2025, with expectations that the rate will further decrease to 2.85% by year-end. These forecasts suggest a significant easing of the financial burden on mortgage holders, potentially lowering monthly repayments considerably.

Westpac echoes a similar sentiment, with its predictions also pointing to September 2024 for the first cut. However, Westpac’s forecast extends through to 2025 with a total of seven rate cuts anticipated, bringing the cash rate down to around 3.10% by the end of the year. This projection reflects a gradual but consistent decline in rates, aimed at stabilising the economy and easing the pressure on borrowers.

Meanwhile, NAB has a slightly different timeline. Their economists predict that the initial rate cut will occur in November 2024. Following this, they foresee a series of gradual reductions throughout 2025, aiming for a cash rate of approximately 3.1% by the end of the year. This gradual approach highlights NAB’s expectation of a steady, controlled response to evolving economic conditions.

ANZ’s outlook aligns closely with NAB in terms of timing. They project the first rate cut to take place in the very late months of 2024, around November or December. ANZ believes that the current cash rate of 4.35% marks the peak and expects it to decline to about 3.60% by mid-2025. This prediction underscores a cautious optimism about the economic trajectory over the next 18 months.

Beyond the banks, prominent economists are also weighing in with their expectations. AMP’s Chief Economist Shane Oliver forecasts that the RBA will start lowering rates as early as June 2024. Oliver predicts three cuts throughout the year, bringing the rate down to 3.6% by the end of 2024. His outlook is based on anticipated data showing weaker growth and falling inflation, providing the RBA with the impetus to ease rates.

Similarly, Moody’s Analytics economist Harry Murphy Cruise suggests that the RBA will commence easing rates in the second half of 2024. Cruise points to persistent inflation pressures and slower improvements as factors that will likely delay the rate cuts until the latter part of the year. His analysis implies that while inflation might remain a challenge, the RBA will eventually have enough evidence to justify easing the rates.

These predictions from banks and economists signal a broad consensus that the current high rates are likely to be maintained in the short term, with a shift towards easing expected in the latter half of 2024. This anticipated movement in rates is poised to provide some relief to Australian households and businesses grappling with the financial pressures of recent hikes.

As the RBA continues to monitor economic indicators closely, the upcoming months will be crucial in shaping the trajectory of interest rates. The expected rate cuts, if realised, will mark a significant change in monetary policy, aiming to support economic growth and reduce the financial strain on Australians.

For now, the outlook suggests a cautious wait until mid to late 2024 for any significant changes, with a collective eye on the economic data that will inform the RBA’s decisions. As these forecasts unfold, the nation will be watching closely, hoping for a respite from the current high rates and a smoother economic journey ahead.

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