ANZ Bank has sparked optimism among Australian mortgage holders by forecasting the Reserve Bank of Australia (RBA) to enact interest rate cuts as soon as February 2025. The financial giant expects the RBA to reduce the cash rate by 25 basis points, bringing it down from 4.35% to 4.1% at its first board meeting of the year scheduled for February 17-18.
This prediction aligns ANZ with the Commonwealth Bank, which has also suggested similar timing for the rate cut. Conversely, other major banks, namely Westpac and NAB, are taking a more conservative stance, predicting the first rate cut will not occur until May 2025.
Recent inflation trends appear to be the primary driver behind ANZ’s changed forecast. According to data from the Australian Bureau of Statistics, trimmed mean inflation for the December quarter is anticipated to be just 0.5%, the lowest figure seen since mid-2021, making the overall annual inflation rate drop to 3.2%. "We think this will be enough for the RBA to cut the cash rate by 25 basis points at its February meeting," said ANZ senior economists Catherine Birch and Adam Boyton.
Inflation has been the focal point of conversations among economists, and many eagerly await the upcoming inflation data due for release on January 29. This data is anticipated to be influential as it could solidify the RBA’s decision-making process and their assessment of the economic state heading forward.
Sally Tindall, Canstar’s data insights director, echoes the sentiment of cautious optimism, noting, "The RBA knows just how tough it’s been for people with a mortgage. It wants to deliver rate relief as soon as the data allows." A single rate cut could translate to savings for borrowers—approximately $92 monthly for those with $600,000 loans, $115 for $750,000 mortgages, and $154 for $1 million loans.
Yet, not all economists are united behind rampant optimism. ANZ predicts only two rate cuts throughout the year, with the second expected to come around August 2025. They noted significant uncertainties remain, especially considering the tightness within the labor market, which, they warn, could pose upside risks to inflation metrics.
Despite ANZ's upbeat projections, other economists remain cautiously optimistic, outlining various scenarios post-January's inflation data. NAB's senior economist, Taylor Nugent, supports the notion of potential rate cuts, pointing out, “The inflation backdrop is meaningfully improved compared to the RBA’s cautious November forecast.” Analysts will be watching the January figures closely, as any deviation could alter the RBA's planned course.
With the market now factoring in increased likelihoods of rate cuts, different banks convey varying perspectives on how many cuts could materialize over the course of the year. Commonwealth Bank, for example, speculates on four cuts bringing the rate down to 3.35%, whereas NAB has posited three cuts leading to 3.60%. Meanwhile, Westpac, too, aligns with NAB's viewpoint of cuts commencing from May.
There's acknowledgement among the major banks of the hesitance the RBA may exhibit, signaling the central bank's desire for stability rather than rushing toward aggressive cuts. ANZ's economists articulated this concern, cautioning, “We think the RBA will be cautious, rather than February being the start of an aggressive easing.” Observers underline, as has been echoed across various significant platforms, the importance of upcoming data as the RBA navigates its monetary policy options.
With financial pressures weighing on households across the nation, the anticipation of rate cuts hangs heavy on the minds of many mortgage holders. The marginal relief expected from interest rate cuts could greatly improve monthly budgets, allowing for breathing space, though economist sentiments remain firm in highlighting the lack of certainty surrounding the overall economic environment.
This month is poised to hold significant data pivotal to the RBA’s decisions, as household inflation rates coupled with labor market figures could set the tone for monetary policy moving forward. The delicate balance between controlling inflation and providing mortgage relief will undoubtedly dominate financial discussions as Australia moves through 2025.