Rate relief tipped in 2024
Markets and Big Four banks disagree on timing of expected cut
Economists and financial markets are betting on 2024 to bring long-awaited relief to millions of Aussies in the form of falling interest rates.
The official cash rate ended 2023 at 4.35 per cent, and financial markets see a 25 per cent chance of an interest rate cut by March.
However, forecasts of a cut by June are much more widespread, with finance traders forecasting the Reserve Bank of Australia will slash the cash rate twice before the end of 2024.
The confidence among financial markets that interest rates in Australia will fall sooner rather than later stems from moves in the US.
In mid-December, the US Federal Reserve flagged that its cycle of increasing interest rates had likely come to an end, with predictions that interest rates there will fall five times in 2024, with interest rates in the UK and Europe predicted to fall six times this year.
But in Australia, economists from the Big Four banks are more cautious, forecasting that interest rate cuts may take longer to materialise.
The Commonwealth Bank of Australia and Westpac are both forecasting the first interest rate cut won’t come until September 2024, while ANZ believes it may take slightly longer, predicting that the RBA will deliver the first rate cut in November 2024.
NAB is the most pessimistic of the Big Four, forecasting interest rates won’t start to fall until December this year.
With the chance of one further rate rise on the cards, Aussies may still not quite be out of the woods.
There’s an outside chance the RBA may increase interest rates when it meets for the first time this year on Tuesday, February 6.
Minutes from the last RBA board meeting on December 5, 2023, show the bank is willing to increase rates again if inflation for the past three months comes in above its forecasts.
“Members agreed that whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable time frame will depend on how the incoming data alter the economic outlook and the evolving assessment of risks,” minutes from the RBA’s December meeting say.
Consumer price index data for the three months to December 31, which the RBA uses to assess inflation, will be released on January 31.
NAB is forecasting that interest rates will rise by another 0.25 per cent before March.
When it comes to where interest rates may be by the end of 2024, opinions among the Big Four are also mixed.
CBA has interest rates ending the year at 3.6 per cent, while Westpac sees them ending the year slightly higher at 3.85 per cent.
ANZ suggests interest rates will end the year at 4.1 per cent, but the NAB forecast again paints the bleakest picture for Aussie mortgage holders, with the bank forecasting the official cash rate will end 2024 at 4.35 per cent – exactly the same level as at the end of 2023.