Australia’s Big Four banks are forecasting interest rate cuts in 2024, with one major bank expecting rate relief as early as March.
The Reserve Bank of Australia (RBA) yesterday opted to keep the official cash rate on hold at 4.1 per cent for the third month in a row.
Commonwealth Bank (CBA), Australia’s biggest bank, believes the cash rate has peaked and has predicted an interest rate cut in March next year.
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“Based on our current forecasts for economic activity, prices and the labour market, the RBA could cut the cash rate in March 2024, but the clear risk is a later start date to the easing cycle,” CBA senior economist Belinda Allen said.
CBA expects a total of four interest rate cuts over 2024, taking the cash rate to 3.10 per cent, a level it considers “a more neutral cash rate stance”.
A 1 per cent interest rate cut would save a borrower with a 7 per cent interest rate and a $600,000 home loan over 30 years about $395 a month on their repayments.
Rate cuts could come later
Westpac, NAB and ANZ believe the RBA will start cutting interest rates later into 2024.
Westpac expects interest rates will start falling from September next year, with another rate cut in December to bring the cash rate to 3.60 per cent.
NAB believes there is still the possibility of further 0.25 rate hike this year, bringing the cash rate to 4.35 per cent. It then thinks rate cuts will begin in August 2024.
ANZ believes the RBA has finished hiking rates in this current cycle and will make its first cut in November 2024.
Borrowers told to haggle or refinance
With the Big Four bank’s rate forecasts varying significantly, RateCity research director Sally Tindall advised borrowers to focus on clearing another potential rate hike, rather than anticipating a cut.
“A watched pot never boils. If you’ve got a mortgage, put your head down and come up with a budget that will withstand another rate hike, rather than a rate cut. If and when a cut does finally come your way, you can be pleasantly surprised,” Tindall said.
“The RBA and the government can’t hand out widespread relief to borrowers at this stage. If they do, they risk triggering another spike in inflation. If you need to inject relief into your budget, you’re going to have to be proactive about it.”
RateCity found the average mortgage holder who hadn’t chased down a better deal had an interest rate of 6.86 per cent.
By refinancing to a competitive rate of 5.75 per cent, borrowers with a $500,000 loan with 25 years remaining could save $329 a month. Even haggling to the Big Four banks’ new-customer rate of 6.25 per cent, could save them $182 a month.