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Major Banks Forecast RBA Interest Rate Cuts Ahead
Introduction
Recent trends among Australia’s major banks indicate a shift in expectations regarding the Reserve Bank of Australia’s (RBA) cash rate. Following a series of economic indicators, Westpac has become the latest of the Big Four banks to predict an interest rate cut, with three banks now projecting changes as early as next month.
Shift in Forecasts
On Wednesday, updated inflation data reinforced the push for a decrease. Westpac’s chief economist, Luci Ellis, announced that the bank anticipates the RBA will reduce the cash rate in July rather than in August, despite cautioning that this expectation may not reflect market sentiment.
Currently, market conditions suggest an 86% likelihood of a cut occurring next month. Ellis noted that while there have been instances where the RBA surprised markets by maintaining rates, it seems logical to act sooner given the prevailing economic conditions.
Inflation Data Insights
Recent reports indicate a decrease in headline inflation to 2.1% for the year leading up to May, down from 2.4% the month prior. Trimmed mean inflation also dropped to 2.4% in May, marking the lowest level since November 2021. The Commonwealth Bank echoed Westpac’s sentiment by bringing forward its forecast, also suggesting a July cut, potentially followed by another in August.
Ellis highlighted that the unexpected decline in monthly consumer price index (CPI) figures will assist inflation in stabilising around the RBA’s target midpoint of 2.5%. Nevertheless, she advised caution, as upcoming quarterly inflation statistics for June may reflect higher values, requiring a tempered outlook.
Rate Cut Predictions
Westpac’s predictions include a sequence of rate cuts—expected to total four, pushing the cash rate down to 2.85%. The anticipated timing for subsequent cuts would hinge on the tone of the RBA’s statements following meetings, with projections for additional reductions in November, February, and May. Commonwealth Bank, Westpac, and NAB align in forecasting a July rate adjustment, while ANZ remains hopeful for an August modification.
Impact on Borrowers
For borrowers, the anticipated 0.25% rate cut in July could translate to a reduction of approximately $90 in monthly repayments for a borrower with a $600,000 mortgage and 25 years left on their term. If further cuts occur, estimates suggest that total savings could reach almost $180, or even $350 should four cuts be realised.
Market Competition and Borrower Strategies
Sally Tindall, Canstar’s data insights director, encouraged borrowers to leverage current market competition, noting that over 35 lenders now offer variable rates below 5.50% for owner-occupiers making principal and interest repayments. With rate cuts on the horizon, she urges homeowners to negotiate their mortgage rates more aggressively with lenders to maximise potential savings.
Conclusion
As the RBA considers its next moves, the collective insights of major banks signal a notable shift in the financial landscape. With inflation easing and economic conditions evolving, the coming weeks could bring significant changes that directly impact borrowers across Australia.
