Only major bank not backflipping on 2024 interest rate cut

Westpac is the latest bank to lose hope for an interest rate cut for borrowers this year. The Reserve Bank of Australia (RBA) held the cash rate at its 12-year high of 4.35 per cent for August and said rate cuts were off the table for the next six months.

There was a time this year when all Big Four banks agreed there would be a cut in 2024. But this timeline has started to push back, with ANZ and NAB pushing their prediction to early and mid-2025.

Westpac, like Commonwealth Bank (CBA), had forecast the first interest rate cut to come in November this year. But it said that forecast has been put “under review” due to the RBA’s hawkish stance.

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“Given the Board apparently does not see its way to cutting rates this year, our expectation of a November rate cut is unlikely to be achieved,” Westpac chief economist Luci Ellis said.

“Our rate forecasts are under review while we assess the basis for the RBA’s own economic outlook.”

RBA governor Michele Bullock said a “near-term” cut in interest rates wasn’t on the cards, which would be a cut in the next six months.

Are you with record- high interest rates? Contact tamika.seeto@yahooinc.com to share your story

"I understand that this is not what people want to hear. I know there are many households and small businesses that are struggling with interest rates where they are,” Bullock said on Tuesday after the cash rate decision was handed down.

She said the board was still on a “narrow path” of ensuring inflation returned to its 2 to 3 per cent target range without slowing down the economy or spiking unemployment.

Ellis said the RBA’s desire to “stay the course” and other language indicated that it wanted to see inflation “almost back in the target range before cutting rates”.

The RBA also updated its official forecasts and has now predicted it will take slightly longer than expected for inflation to return to target. Underlying inflation - which excludes movements in volatile items like petrol - to return to the target in late 2025 and approach the midpoint in 2026.

CBA still forecasting November cut

Following yesterday’s announcement, CBA said its base case of a November rate cut was “unchanged”.

CBA head of Australian economics Gareth Aird said the overall message from the RBA was “a little more hawkish” than anticipated.

“But given the RBA is highly data dependent it will ultimately be the data that determines the outlook for monetary policy,” he said.

“Recent events offshore, particularly in the US, highlight that the picture can change quite quickly if the data makes the case. And history shows that central banks can turn on a dime if outcomes deviate from their expectations (in either direction).”

But Aird said the “wriggle room” on data was still tight and there was a risk that interest rate relief would not arrive until the first half of 2025.

“But we believe the data will continue to evolve in a way that sees the RBA cut the cash rate in November,” he said.

The timing of the first rate cut will be significant for borrowers. If CBA's forecast is correct and there are a total of three cuts by the end of July 2025, RateCity calculated the average borrower with a $600,000 debt would see their monthly repayments drop by $271.

NAB remains resolute in its forecast the RBA will keep rates on hold until the first half of 2025 and has pencilled in May 2025 for the first cut.

If this happens, RateCity found borrowers' repayments would only drop by $91 within the next year. This assumes banks pass cuts on in full, which some experts have warned may not be the case.

ANZ has also stuck with its call that the RBA will cut rates in February 2025.

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