Interest rates on hold but mid-year cut now looking unlikely

The RBA has kept interest rates on hold at 4.35 per cent but expectations of a rate cut within the next few months are diminishing as economic conditions force the reserve bank's hand.

RBA building exterior
While the latest RBA decision did not come as a surprise, expectations of an imminent rate cut have receded. (Image source:

Borrowers can take solace in the realisation that interest rates have probably hit their peak, with the Reserve Bank of Australia keeping the official cash rate at 4.35 per cent at its March meeting held Tuesday (19 March).

That optimism, however, is being tempered by the prospect of a mid-year rate cut growing increasingly remote.

Economists and finance experts have all but abandoned predictions of a mid-year reprieve for borrowers, with a near unanimous opinion emerging that interest rates will remain where they are until late 2024 or into next year.

The big four banks had a few months ago tipped inflation to be low enough to allow rate cuts by mid-2024 but their predictions have since tempered.

  • ANZ predicts that the current level of 4.35 per cent will be the cash rate’s peak, with the first cuts to start around November 2024, and rates dropping to a level of around 3.60 per cent by mid-2025.
  • CommBank predicts that the current level of 4.35 per cent will be the cash rate’s peak and that the first cut is likely to occur around September, with rates eventually dropping to around 2.85 per cent by the middle of 2025.
  • NAB economists predict that the current level of 4.35 per cent is the cash rate’s peak, with the first cuts to occur in the December quarter of 2024, and rates reducing to 3.10 per cent by the end of 2025.
  • Westpac predicts that the current level of 4.35 per cent will be the cash rate’s peak and that we might expect the first rate cuts to occur around September, with the cash rate eventually settling at 3.10 per cent in the September quarter of 2025.

An increase in the cash rate is now very doubtful, with a succession of eventual falls in the cash rate more likely.

Matthew Greenwood-Nimmo, Associate Professor of Economics, University of Melbourne saw no reason strong enough to prompt an RBA rethink on rates.

“I think the cash rate is likely to be maintained at the current level for some time, until the economic climate justifies a rate change.

“It seems likely that the next change to the cash rate is likely to be cut, but we’re not at the stage to see that happen yet.”

Other commentators pointed to near-full employment levels, rising wages and population growth through migration as factors that will stymie any RBA ambitions to cut rates and ease pressure on stressed households.

Matthew Peter, Chief Economist for fund manager QIC, said the tide was turning but slowly.

“Inflation continues to abate, while the outlook for the economy weakens.

“Rate hikes are now off the table, however, elevated migration, the upcoming tax cuts and ongoing wage increases will stop the RBA from easing back on monetary policy until later this year.”

A September rate cut was a possibility, according to James Morley, Professor of Macroeconomics at University of Sydney, with Australia likely lagging behind other major economies in terms of rate cuts.

“Economic conditions will continue to weaken for the Australian economy, with slow growth and rising unemployment throughout 2024.

“Inflation is also likely to continue falling but could remain above the target range until 2025.

“The RBA will continue to be concerned about services inflation and, in my mind, be unlikely to cut until they see further progress on lower services inflation and also start to see rate cuts in the United States and other countries.

“I believe a weakening of economic conditions and progress on inflation will see the RBA begin rate cutting in the second half of 2024, possibly with the September meeting,” Professor Morley said.

RBA ruling nothing in or out

While all the attention is centred on the timing of a possible rate cut, RBA Governor Michele Bullock has not ruled out further increases if inflation remains stubbornly above its preferred range of 2 to 3 per cent. The headline monthly CPI indicator was steady at 3.4 per cent over the year to January, with momentum easing over recent months, driven by moderating goods inflation.

The central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026.

“While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain,” the latest RBA Monetary Policy Statement noted.

“While recent data indicate that inflation is easing, it remains high.

“The Board expects that it will be some time yet before inflation is sustainably in the target range.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.”

The statement also pointed international factors that could impact Australias economy, noting that, There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts in Ukraine and the Middle East.”

Property prices resilient despite high interest rates

Home prices in 2023 remained resilient to the higher interest rate environment and the improvement in conditions that materialised through 2023 has continued in 2024.

The PropTrack Home Price Index indicated national home prices hit a new record high in February, lifting 0.45 per cent, the largest monthly rise since October 2023. That brings prices up 0.82 per cent so far this year and up 6.15 per cent compared to a year ago, the fastest annual rise since July 2022.

Speaking after the RBA’s latest decision, Eleanor Creagh, PropTrack’s Senior Economist, said national home price growth slowed at the end of 2023, however, it has accelerated with summer drawing to a close.

“Looking ahead, the next move for interest rates is likely to be down.

“Despite a weaker outlook for the economy, the positive tailwinds for housing demand and a slowdown in the completion of new homes are likely to offset the impact of reduced affordability and a slowing economy.

“As a result, prices are expected to lift further in the months ahead, particularly while the expectation remains that interest rates will move lower in late 2024.”

Monthly home loan repayments have risen since the May 2022 cash rate rise by an estimated $1,562 per month on a $600,000 loan over 30 years taking repayments up to $4,085, according to Canstar. 

A surprise rate rise of 0.25 per cent would add another $102 and see monthly repayments on a $600,000 loan reach $4,187. However, a welcome rate cut could cut current repayments on a $600,000 loan by $101 to $3,984 per month.

Financial stress among consumers has started to decrease, according to Finder’s Consumer Sentiment Tracker.

The proportion of Australians who are extremely stressed with their financial situation has dropped from 31 per cent in July 2023 to 23 per cent in March.

Experts are more split, with nearly half of those who weighed in (48 per cent) saying financial stress on households will continue to decrease in 2024, while the remaining 52 per cent don’t think the stress is going anywhere.

Real Estate Institute of Australia President Leanne Pilkington said don’t expect cost of living stress to disappear immediately.

“Stable, and possibly declining, interest rates enable people to realign their budgets to the evolving cost of living reality but any easing in financial stress will be gradual,” Ms Pilkington said.

Associate Professor Stella Huangfu from University of Sydney said with the slowdown in the labour market on the horizon, there is a growing concern.

“As job opportunities diminish, more individuals may experience job loss, making it increasingly difficult for them to manage the ensuing financial stress,” Ms Huangfu said. 

Article Q&A

What is the official cash rate in Australia?

The RBA has kept interest rates on hold at 4.35 per cent at its March 2024 board meeting.

Will interest rates fall in 2024?

The big four banks had a few months ago tipped inflation to be low enough to allow rate cuts by mid-2024 but their predictions have since tempered, with all now predicting a rate cut between September and December this year.

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