Australia's mortgage holders are expecting relief from high interest rates, with the nation's four major banks aligning on projections for the Reserve Bank of Australia (RBA) to execute significant rate cuts beginning as early as February 2025.
National Australia Bank (NAB) announced recently it anticipates the RBA will initiate its cutting phase at the upcoming meeting on February 18, driven by signs of cooling inflation. This shift from earlier forecasts, which suggested cuts wouldn’t come until May, is welcome news for many borrowers battling the financial strain of the current 4.35 percent cash rate — the highest level since November 2023.
The latest data reveals annual inflation dipped to 2.4 percent over the December quarter, marking the best consumer price index results since March 2021. Alan Oster, NAB's chief economist, stated, "We now expect the RBA to cut the cash rate by 25 basis points in February," reflecting broader consensus among the Big Four banks, with Commonwealth Bank, Westpac, and ANZ forecasting similar timelines.
This forecast indicates potential savings for mortgage holders. For example, borrowers with mortgages around $600,000 would see their monthly repayments decrease by nearly $100 with the anticipated rate cut. Oster emphasized, "Interest rate cuts are like cockroaches – there is never just one of them," hinting at the gradual cuts to follow subsequent to February.
These insights come amid a backdrop of cautious optimism as inflation appears to be moderatining more quickly than the RBA had projected. Oster noted, "The fourth quarter CPI confirms inflation has moderated more quickly than the RBA expected and sets up for likely downward revisions to the inflation profile." With this benchmark, mortgage holders may see sustainable easing of rates, potentially down to 3.1 percent by February 2026.
While banks differ on overall predictions for the number of cuts to come, they all agree the first reduction seems imminent. NAB's expectation of five cuts contrasts ANZ's two, but the consensus is clear: the time for rate relief is near. The current outlook stands alongside other global central banks, which have already begun to slash rates, including Canada, the U.K., and the European Union, signaling broader economic recovery efforts.
Significantly, the inflation rate outside the U.S. remains higher than Australia’s, with future projections indicating pressure may lead to alterations within the RBA’s monetary policy moving forward. Multiple banking experts have noted the monetary conditions will have to shift as the labor market remains strong but without signs of excessive inflationary pressure.
Wage growth remains steady, posing challenges similar to those seen globally. Yet, even with expectations set high for upcoming cuts, experts urge caution. "While the board likely has gained confidence inflation will sustainably return to target as soon as late 2025, there is still some risk of retightening," reminded Oster.
This muted revisit to historical rate levels raises expectations for future developments not only for mortgage rates but also for the overall economic health of the nation as it grapples with broader inflation concerns. The RBA has kept interest rates unchanged since its last review on December 10, reflecting on insights from various economic indicators.
Despite this positive shift, experts encourage homeowners to act wisely moving forward. Canstar's data insights director, Sally Tindall, remarked, "A rate cut has the potential to inject almost $100 back each month for those with substantial mortgages. With improved conditions expected, now is the time for homeowners to align their strategies with these imminent possibilities." Struggling Australians, meanwhile, are urged to approach lenders for potential adjustments, lending to hopeful energy as the first cuts loom.
If this forecast plays out as expected, February could set the stage for significant financial breathing room for Australians grappling with high mortgage costs and the challenges stemming from previously rising interest rates.
Overall, this anticipation marks a pivotal moment for struggling homeowners as Australia awaits the RBA's decisions alongside those being made on the global stage, preparing them for what could be the end of high interest rates and the start of easing financial burdens.