When Australians can expect an interest rate cut after more than a year of severe mortgage problems
- Westpac now expects a rate cut in May
- But rates would go up in August, September
Westpac now expects the Reserve Bank to cut interest rates again in May next year, but only after inflicting more pain on borrowers.
Outgoing chief economist Bill Evans forecast the RBA would raise rates in August and September, taking the cash rate to a 12-year high of 4.6 percent.
But after that, he predicted that rates would be cut next year, bringing the cash rate to 4.35 percent, which would be higher than the existing 11-year high of 4.1 percent.
“The first rate cut in the subsequent easing cycle is expected next May,” he said.
By then, Philip Lowe may be replaced as Reserve Bank governor, with a seven-year term that expires on September 17 and a replacement is likely to be announced this week.
Westpac has adjusted its forecasts after forecasting in February that the first of seven rate cuts would start in March 2024.
Westpac now expects the Reserve Bank to cut interest rates again in May next year, but only after inflicting more pain on borrowers (an auction pictured at Paddington in Sydney)
Just five months ago, Westpac was forecasting an RBA cash rate peak of 4.1% and seven rate cuts that would take it back to 2.35% by September 2025.
But two more rate hikes than previously anticipated mean the Reserve Bank’s cash rate would fall back to 2.85 percent, should Westpac’s prediction of seven rate cuts in 2024 and 2025 come to fruition. .
Inflation in May moderated to 5.6 percent, down from 6.8 percent in April, but still well above the RBA’s target of 2 to 3 percent.
However, easing inflationary pressures caused the Westpac-Melbourne Institute’s consumer confidence score to rise 2.7 percent in July to 81.3 points.
This reading was still well below the 100 level, where the bulls outnumber the bears.
Evans said the moderation in inflation rather than the RBA’s July rate break did more to boost consumer sentiment, which still remains deep in negative territory.
“A reported significant drop in inflation seems to have boosted confidence,” he said.
“Consumers remain cautious on interest rate outlook despite RBA pause.”
By May of next year, Philip Lowe may be replaced as Governor of the Reserve Bank with his seven-year term expiring on September 17 (He is pictured center with Assistant Governor Luci Ellis and former Lieutenant Governor Guy Debelle in 2017)
The Reserve Bank’s 12 rate hikes since May 2022 are the most aggressive since 1989.
“The key message is that confidence is unlikely to see a sustained rise from current deeply pessimistic levels until inflation is much lower and interest rates hold firm,” Evans said.
The survey of 1,200 Australians, conducted in the first week of July, found that consumers expect house prices to rise, even if they consider now to be a bad time to buy a property.
The house price reading produced a score of 149.3, well above the 100 point where optimists outnumber pessimists, after Sydney house prices rose last month. two percent to $1.32 million.
But the question about whether now was the time to buy a home scored 76.4 points, well into the negative zone.
Evans has been Westpac’s chief economist since 1991, but Luci Ellis, the Reserve Bank assistant governor in charge of economic research, will replace him in October.