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The Reserve Bank of Australia (RBA) has held the cash rate steady at 4.35% for 13 consecutive months, but analysts suggest this could change soon, providing relief for borrowers who have struggled with rising costs since the pandemic.
The Commonwealth Bank’s head of Australian economics, Gareth Aird, told Daily Mail Australia he predicts the first rate cut will occur after the RBA’s February meeting.
"Our base case is for the RBA to commence normalising the cash rate in February 2025 with a 25-basis-point interest rate cut. We look for 100bp of easing over 2025 that would take the cash rate to 3.35%,” Aird said. He also pointed to the RBA’s recent statement and comments by Governor Michele Bullock as signs of a possible shift in monetary policy. "We are encouraged by today's statement for our call for a February rate cut. But we are not across the line yet.”
NAB Group CEO Andrew Irvine shared a similar outlook, predicting that rate cuts would begin by mid-2025. He believed that conditions could only improve, claiming “we’re at the hardest point of the economic cycle right now.”
"When we get that first rate cut, I think it's going to have a significant impact on the psyche of consumers, as well as business people, that is likely far greater than the actual impact it will have on cashflow,” Irvine said in a bank newsletter. He expects two additional cuts to follow within the next 12 months.
Other banks, including ANZ, Westpac, and NAB, have forecasted rate reductions later in the year, with some predicting as many as five cuts in 2025. Earlier projections had suggested a 25-basis-point cut in May, but updated analyses reflect varying expectations depending on economic performance in the months ahead.
Westpac chief economist Luci Ellis told Daily Mail Australia the strength of the Australian employment market as a stabilising factor amid financial pressures.
"The big thing for us is employment and the strong employment market conditions throughout Australia and the minimal amount of unemployment. Typically, as long as people have jobs and there is income coming into the household, most bills, most mortgage payments are met, and the worst doesn't happen. At the back end of this year you'll start to see good growth,” Ellis said.
Despite the positive outlook on employment, households are feeling the strain of higher living costs. However, Commonwealth Bank’s Angus Irvine noted that tax cuts have allowed some Australians to save more: "Deposit balances are increasing in the sector, which I think is promising.”
