The Reserve Bank of Australia (RBA) has been making waves, adjusting the Cash Rate several times since 2022 to combat rising inflation. This, of course, has a direct impact on homeowners and those looking to buy property, with interest on mortgages closely tied to the Cash Rate.
With the rate hikes temporarily paused in 2024, and the Cash Rate holding steady at 4.35%, the question remains: What’s next for interest rates in Australia?
In this article, we examine expert and bank forecasts to explore what the future might hold for you as a borrower or homeowner, and the broader economy. Experts are divided on the RBA’s next move.
We’ll also examine the RBA’s recent Cash Rate moves, highlighting how they have evolved in response to various economic conditions.
Recent Cash Rate Moves
The RBA’s Cash Rate adjustments reflect their response to various economic conditions:
- November 2020: The COVID-19 pandemic leads to a record-low Cash Rate of 0.10%, intended to stimulate the economy.
- May 2022: The first hike since 2020, with the Cash Rate rising to 0.35% due to rising inflation.
- July 2022: Inflation surges to 5.1%, prompting a 0.50-percentage-point increase to 1.35%.
- February 2023: The rate reaches 3.35%, from a low of 0.85% in July 2022.
- June 2023: A brief pause with the Cash Rate holding at 4.10%.
- November 2023: Cash Rate holds at 4.35% after a series of increases.
This historical snapshot highlights how the RBA adapts its policies based on the economic climate. We can see how rates fell dramatically during the global financial crisis and how they have been raised to fight inflation in recent years.
The pandemic brought another twist as well. Rates were slashed to a record low in 2020 to bolster the economy. However, by 2022 and 2023, inflation was a pressing concern. The RBA responded with a series of eight rate hikes, pushing the Cash Rate from its low of 0.10% in April 2022 to 4.35% by December 2023. The latest increase, in February 2023, further emphasised the RBA’s commitment to curbing inflation, even amidst global uncertainties.
The recent rate hikes are part of the RBA’s ongoing battle against inflation. While the future may seem a little unclear right now, understanding the RBA’s actions and their potential impact on your finances can help you make informed decisions for your home loan and overall financial well-being.
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Your Guide To Finding The Interest Rate That’s Your Best Match
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Predictions From The Big Four Banks
Here’s a breakdown of what the Big Four banks – ANZ, Commonwealth Bank, National Australia Bank (NAB), and Westpac – are predicting for the peak Cash Rate and the timing of potential future cuts:
| Bank | Peak Rate | Expected Rate |
|---|---|---|
| ANZ | 4.35% | 3.60% by December 2025 |
| Commonwealth Bank | 4.35% | 3.10% by December 2025 |
| National Australia Bank | 4.35% | 3.60% by December 2025 |
| Westpac | 4.35% | 3.10% by December 2025 |
Please note that these forecasts are as of August, 2024. The banks may revise them.
Disclaimer: Please note that these are only forecasts, and the banks may revise them.
All four major banks agree that the peak rate will remain 4.35%; however, they differ on when and how quickly it might come down.
ANZ is the most optimistic about how soon the rate will come down, predicting a drop to 3.60% by June 2025. CommBank, NAB, and Westpac anticipate a slower decline, with rates settling around 3.10% by the end of 2025. These differences likely stem from varying views on how fast the RBA’s rate hikes will cool inflation and allow for rate cuts.
Either way, it means that if you are a borrower, you should expect higher loan interest rates for a while, potentially slowing down spending and economic growth.
Detailed Forecast By Experts
Summary of Cash Rate predictions by our Home Loan Experts’:
Alan Hemmings, CEO of Home Loan Experts, shared his insights on the RBA’s decision.
“Although the RBA left the cash rate unchanged, the board is still watching very closely what happens in the economy. Inflation edged lower, but it is still well above the preferred band of 2-3%. There are concerns about increasing costs across a range of products and services. Housing costs continue to increase and this is putting upward pressure on inflation. The Reserve Bank will want to see some ongoing downward movement in inflation to make sure it does not have to increase the cash rate again. Even if the RBA continues to retain a stable cash rate, it is expected it will be next year before it looks to cut interest rates.”
So, what does it mean for homeowners?
“For customers, the outcome is positive, although some caution is still warranted,” Hemmings said. It may be that we are at the top of the interest-rate cycle, but although this means no increases to mortgage repayments, inflation still means other costs are rising. As always, we ask existing customers to continue to review their home loan rates and speak to their broker, as there may be better interest rates available. With costs increasing, if clients are struggling to meet their repayments it is best they be on the front foot and talk to their broker, who can guide them on what to do. For clients looking to get into property, speaking to a broker to maximise borrowing potential and get guidance on first-home buyer schemes is vital in this market.”
Disclaimer: Prediction made in August 2024.
The RBA’s Pause: A Signal For The Future?
While recent data suggests a slight dip in inflation, ongoing global factors and domestic supply-chain disruptions could cause inflation to surge again. The RBA needs to strike a delicate balance: curb inflation without stifling economic growth. The board monitors key inflation indicators like the Consumer Price Index (CPI) to gauge the effectiveness of its monetary policy decisions. A sustained rise in inflation could force the RBA’s hand and lead to further rate increases in the latter half of 2024.
Expert Tips for Homeowners As Interest Rates Change
- Extra Repayments: Making extra repayments on your loan can reduce your outstanding balance and future interest payments. Even small additional payments add up over time. Consider setting up automatic transfers to ensure consistency.
- Offset Accounts: Linking your savings account to your mortgage can reduce the loan balance based on the funds in your savings account. Every dollar in your offset account lowers your loan balance as if you had made a direct repayment, saving you on interest charges.
- Refinancing: Explore refinancing options with different lenders that offer lower interest rates. Be sure to consider any associated fees and ensure the new loan terms are beneficial to you.
- Consolidate Unsecured Loans: Consolidating unsecured loans with your home loan can lower your overall repayments. This strategy can simplify your finances and reduce the interest you pay.
- Take Advantage of Refinancing Rebates: Some lenders offer rebates when you refinance at a lower rate. This “free money” can help offset any refinancing costs.
- Ask Your Lender for a Rate Review: Contact your lender to request a rate review. They might offer a lower rate to keep your business.
- Pay Down Existing Debt: Prioritise paying down existing debt to improve your financial health. Reducing debt can help you manage your mortgage more effectively and increase your financial stability.
- Lower Discretionary Expenses: Unsubscribing from services you no longer use or need can reduce unnecessary expenses and free up funds for other important payments.
- Build Emergency Savings: Having an emergency savings fund can provide a financial cushion during times of uncertainty, helping you manage unexpected expenses without stress.
- Generate Passive Income: To supplement your earnings, consider ways to generate passive income, such as renting out a spare room or investing in dividend-paying stocks.
Feeling Uncertain? We’re Here To Help!
When the Cash Rate moves, your variable interest rate usually does, too. Increases often lead to higher repayments. Our team of mortgage experts can analyse your current mortgage, explain the potential impact of Cash Rate changes, and explore options that offer more stability. We also have a handy repayment calculator to estimate your new repayments whenever your lender changes your loan’s interest rate.
Please call us on 1300 889 743 or complete our free online assessment form today!