As we’re well and truly into the new year with rates currently holding at 4.35 per cent, borrowers are of course keen to understand will interest rates start to come down.
Some economists are predicting that imminent mortgage relief could be on the horizon, with the RBA possibly announcing the cash rate cut as soon as February. If that eventuates, it would be the first rate cut since 2020.
As one of the best mortgage brokers Perth has to offer, the one thing we always tell our clients is that no one knows for sure what is going to happen. Global events are still volatile, and ‘stagflation’ is a big risk in the current economic climate. The best you can do is work with your current situation and make the best decisions based on the basics.
Here is the latest round up of predictions to allow you to make an informed decision.
When is the next RBA meeting?
The next meeting of the Reserve Bank board will take place on Monday, February 17, and Tuesday, February 18.
The board’s decision to cut, increase or keep the official cash rate unchanged will be announced shortly after the meeting concludes at 2:30pm AEDT on February 18.
Will they or won’t they cut rates?
Economists are divided on what could happen at this impending meeting. Many economists have brought forward their predictions for a rate cut to February. This includes experts from Australia’s major banks—NAB, Westpac, CBA, and ANZ—who are all forecasting a 25 basis point reduction.
With underlying inflation in the recent quarterly consumer price index surprising to the downside, economists increasingly view rate cuts in the first half of this year as a when, no longer an if. T
The next 0.25 per cent rate cut after that isn’t priced in until the July RBA meeting. Overall, the market is tipping 0.88 per cent worth of cuts in the cash rate over the next 18 months, with the cash rate priced to plateau around 3.47 per cent (down from 4.35 per cent at the moment).
The projections for the path of rates until year’s end from the major banks are as follows:
● ANZ: Two 0.25 per cent cuts to a cash rate of 3.85 per cent
● Commonwealth Bank: Four 0.25 per cent cuts to a cash rate of 3.35 per cent
● NAB: Five 0.25 per cent cuts to a cash rate of 3.10 per cent
● Westpac: Four 0.25 per cent cuts to a cash rate of 3.35 per cent
What would a cut mean in tangible terms for your home loan?
Currently, the average payable owner occupier variable rate is 6.33 per cent. Assuming that all cuts are passed on in full, which is an open question, the average payable owner occupier variable rate will fall to between 5.08 per cent and 5.83 per cent.
Further interest rate cuts would lead to more savings. For example, Canstar says two rate cuts would see monthly repayments fall by $229 on a $750,000 loan.
And if there are four rate cuts this year, a borrower with a $1 million loan could save $599 a month.
When will the banks pass on any cuts?
While banks tend to follow official cash rate moves, they aren’t obligated to pass on any cuts.
However, you could expect any bank withholding rates relief from borrowers to come under intense pressure from customers and Canberra.
Ahead of the expected cuts, some fixed home loan rates have begun to fall (to lock customers in).
If you want to reduce your repayments in line with a reduction in interest rates, you should call your mortgage broker or bank to make sure your payments are decreased to the new minimum.
Is there any chance a rate cut won’t happen?
The latest inflation figures give the Reserve Bank the opportunity to ease its grip on the economy. Recent data shows that underlying inflation has decreased more quickly than anticipated, dropping from 3.6% to 3.2% in the December quarter. This marks the lowest annual rate since late 2021, when the economy was still recovering from the pandemic.
As a result, some economists who originally expected a rate cut in May have now moved their forecasts up to February. This inflation data further supports the view that cost-of-living pressures for Australian households have likely peaked.
However, the stronger-than-expected labour market remains a key factor that could impact the Reserve Bank’s decision.
The Trump factor
Another huge factor that may cause caution by the RBA is newly elected US President Donald Trump’s unpredictable trade policies are another factor influencing the RBA’s decision to keep interest rates steady, according to experts.
Markets have been on a rollercoaster ride since Mr Trump returned to the White House.
“There’s a number of plausible scenarios, and you can’t put a probability on any of them because it’s moving still under your feet and very quickly,” said Jo Masters, chief economist at Barrenjoey
Just this week, Beijing hit back with tariffs on US goods in a swift response to new American levies on Chinese imports. Earlier, Mr Trump suspended his threat of hefty tariffs on Mexico and Canada for a month.
For Judo Bank’s chief economist, Warren Hogan, it’s a preview of what’s to come.
“That uncertainty should create caution from the Reserve Bank board and not add to the argument to do something [about rates],” he said, stressing that easing monetary policy prematurely against such a backdrop was risky.
The veteran economist is tipping just two RBA rate cuts, starting in the second half of the year with the final one in early 2026.
Cut or hold but never cut and dry
“Neither a rate cut nor a hold would be a misstep as both moves are easily defensible,” said Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia.
Even so, he thinks the RBA will sit on rates because the government’s financial aid programs to help households with high costs of living are clouding the inflation outlook. “The bank will need to assess whether inflation will be at target when the subsidies lapse and inflation spikes later this year,” he said.
What are your next steps in the wake of the rBA decision this month?
Regardless of the RBA decision in February, you need to make sure your home loan is in the best possible shape, allowing you to work towards your property and life goals, and always having a contingency plan by staying up to date and informed.
Ready to ensure your home loan is as competitive as possible? Call one of Perth’s top mortgage brokers today. We’ll help you find the best rates and terms to suit your needs, saving you time, stress, and money. Let’s get you in a position where you don’t feel like the RBA decision is holding you hostage.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
