Aussie bank’s huge RBA interest rate cut call: ‘Sooner than expected’

A big Aussie bank believes mortgage holders could be getting interest rate relief “sooner than expected”. The Reserve Bank of Australia (RBA) has held the cash rate at a 13-year high of 4.35 per cent for close to 12 months, leaving many anxiously awaiting the first rate cut.

Bendigo Bank chief economist David Robertson said rate relief was “finally becoming more imminent”, following the latest inflation data where headline CPI fell to 2.7 per cent. On top of this, the RBA board noted it did not “explicitly” consider an interest rate hike as an option during its September meeting.

“As a result, we predict the first rate cut here in Australia to occur by May 2025, with a strengthening case for February next year,” Robertson said.

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A February interest rate cut would align with three of the Big Four bank's forecasts, with Westpac, ANZ and NAB now pencilling one in for the first meeting of the year.

CBA is the only major bank to forecast a December 2024 interest rate cut.

If there is a 0.25 per cent cut in February, a borrower with a $600,000 loan today and 25 years remaining would see their monthly repayments drop by $92.

Someone with a $750,000 loan would shave $114 off their monthly repayments, while a borrower with a $1 million loan would see a $153 monthly drop.

Are you a mortgage holder waiting for interest rate relief? Email tamika.seeto@yahooinc.com to share your story

Robertson said “variables remain” when it came to how quickly borrowers could receive that first interest rate cut.

“The first being the pace of inflation moderating. The second, what the impact of tax cuts and cost of living measures are on household demand. Thirdly - labour markets,” he said.

The unemployment rate remained steady at 4.2 per cent in August, Robertson noting there was a record number of Australians unemployed and a record high participation rate.

“Australia has a higher vacancy to unemployment ratio than comparable economies, so labour shortages and demand for labour is yet to recede as it has elsewhere; although from here, a falling job vacancy rate should align to a gradual uptick in unemployment,” he said.

The bank doesn't think the RBA will cut interest rates as soon as December and will want to be “more patient” and “avoid the scenario of cutting prematurely and locking in a higher ongoing inflation rate, limiting the extent of further rate cuts”.

For the final three months of 2024, Robertson is forecasting a firmer Aussie Dollar due to more anticipated US Fed rate cuts.

He also expects a slight uptick in unemployment and headline CPI to settle below 3 per cent, with underlying inflation above target around 3.5 per cent.

Bendigo Bank cuts fixed rates

Last month, Bendigo Bank cut its 1- and 2-year fixed rate home loans by 0.45 per cent for owner-occupiers paying principal and interest.

Fixed rates have continued to tumble, with Canstar finding more than 28 lenders had cut at least one fixed rate in the last two weeks.

Macquarie Bank, Australia’s fifth largest lender, slashed a range of fixed rates by up to 0.40 per cent this week. It now has the lowest fixed rates in the market for 2-, 3-, 4-, 5-year loans at 5.39 per cent, according to Canstar.

“These cuts are being driven by a drop in the cost of wholesale funding and the growing likelihood of cash rate cuts in the next couple of years, however, they’re likely to keep dropping as we inch closer to that first RBA cut,” Canstar data insights director Sally Tindall said.

“Right now the lowest fixed rate is still just 0.36 percentage points below the lowest variable, which is less than the equivalent of two standard rate cuts.”

Tindall urged borrowers to take care when deciding between a fixed and variable rate and noted it would always be a gamble.

“Our research shows that if the big banks’ current cash rate forecasts materialise and lenders pass these cuts on in full, then opting for the lowest variable rate today, over the lowest fixed rate is likely to come out ahead on fixed rate terms of two years or more,” she said.

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