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RBA Rate Cut Forecasts
In a significant shift within Australia’s banking landscape, three of the Big Four banks are anticipating that the Reserve Bank of Australia (RBA) will reduce the cash rate at its next meeting, now just weeks away. Westpac has recently become the latest institution to adjust its forecast, now predicting an interest rate cut as early as July, buoyed by recent inflation data.
Recent Inflation Data
Westpac’s Chief Economist, Luci Ellis, has highlighted a reduction in headline inflation to 2.1% for the year ending in May, down from 2.4% the previous month. The trimmed mean inflation rate also saw a decline, falling to 2.4% from 2.8%, marking the lowest levels since November 2021. This data supports the case for rate relief, leading Westpac to revise expectations sooner than previously forecast.
The Commonwealth Bank (CBA) has echoed this sentiment, forecasting the first cut in July, followed by another in August. Ellis noted that the below-expectations CPI data would help stabilise inflation at the RBA’s target midpoint of 2.5%. However, she did caution that upcoming quarterly inflation figures could be higher, indicating the need for a measured approach to the inflation outlook.
Market Reactions and Future Projections
Market analysts have priced in an 86% probability for a rate cut next month, though Ellis mentioned that the RBA might not always conform to market expectations, particularly if external risks are overplayed. Nonetheless, she believes that the RBA has been considering rate cuts in light of current economic conditions, such as a tight labour market and slow productivity growth, prompting them to act sooner.
Westpac has outlined a comprehensive plan anticipating three further cuts post-July, reducing the cash rate to approximately 2.85% by next year. These cuts would be contingent upon the RBA’s position following its monthly meetings, with projected timing in November, February, and May.
Implications for Borrowers
For borrowers, a rate cut of 0.25% in July could lead to a reduction of around $90 in monthly repayments for a $600,000 mortgage over 25 years, according to insights from Canstar. If Westpac’s projections materialise, whereby two further cuts occur, it could equate to total savings of nearly $180 per month, or up to $350 if four cuts are realised.
Canstar’s data insights director, Sally Tindall, encourages borrowers to leverage existing competition among lenders, with over 35 currently providing variable rates under 5.50% for owner-occupiers. She urges mortgage holders to negotiate their rates proactively ahead of anticipated cuts.
Conclusion
As Australia navigates the economic landscape, the conversation around interest rates is heating up. With major banks shifting their forecasts in response to inflation metrics, homeowners and borrowers should remain informed and ready to act on the potential financial relief that may come from the RBA’s decisions in the near future.
