Mortgage holders struggling with the highest interest rates in 12 years could save hundreds of dollars a month if the Australian stock market’s prediction comes true.
The RBA’s Australian Securities Exchange Target Rate Indicator on Tuesday predicted four interest rate cuts by mid- to late-2025.
The tracker, published at the close of each trading day, predicts the likelihood of the Reserve Bank changing the official cash rate.
This is derived from ASX 30-day interbank cash rate futures prices.
The tracker predicts a 25 basis point interest rate cut in February, followed by three additional cuts in August.
If this holds, the official cash rate would fall from 4.35 percent to 3.35 percent and provide relief from the most aggressive increases since the late 1980s.
The Reserve Bank has raised interest rates 13 times since May 2022 to reach 4.35 percent, the highest level in 12 years.
Variable mortgage payments are 70 percent higher than at the beginning of 2022 as rates have risen from starting with a “two” to starting with a “six.”
Earlier this month, Reserve Bank Governor Michele Bullock ruled out any near-term rate cuts before Christmas.
Finder’s head of consumer research Graham Cooke said Australians with an average mortgage of $641,143 could save $5,076 a year if these rate cuts materialise.
“Four interest rate cuts would offer significant relief to homeowners struggling to meet rising mortgage payments,” he said.
It is important to remember that these predictions are based on probabilities and the future is still uncertain.
‘Homeowners with fixed-rate mortgages may not immediately feel the benefits of the cuts.
‘However, those whose fixed terms are ending soon could see better refinancing options when their loans return to variable rates, helping them avoid the steep increases many have faced in recent years.’
However, he cautioned that market sentiment on the ASX is no guarantee that the RBA will cut interest rates.
Many Australians are suffering from the highest interest rates in 12 years
“The ASX makes clear on its site that the information is indicative only, meaning that while the market may be pricing in the possibility of four rate cuts, this is no guarantee that the Reserve Bank will take action,” he said.
‘The ASX Target Rate Tracker reflects market sentiment based on short-term interest rate futures, but economic conditions can change quickly.
‘Homeowners and investors should remain cautious.’
Last month, Reserve Bank Governor Michele Bullock ruled out any short-term rate cuts before Christmas but acknowledged this was pushing more people into financial hardship.
“Even though this group is quite small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage payments,” he told the Australian Business Economists’ Luncheon in Sydney.
‘This includes things like cutting back on essential items, opting for lower-quality goods and services, dipping into savings or working overtime.
‘Some may ultimately have to make the difficult decision to sell their homes.’
Until recently, however, the futures market had continued to price in rate cuts in November and December, despite Bullock’s firm suggestion that there would be no rate cuts in 2024.
“Circumstances can change, of course, and if economic conditions do not evolve as expected, the board will respond accordingly,” he said.
‘But if the economy broadly evolves as anticipated, the board does not expect to be in a position to cut rates anytime soon.
We need to see the results in inflation before we can do that.
“If we don’t get inflation down, it’s going to be bad for everybody, absolutely everybody. So that’s the task I’m focusing on. That’s the task the board is focusing on. I think the board believes that, at this point, we’re still on that narrow path.”
