Australia may soon witness a reduction in interest rates, possibly dropping by one full percentage point, according to the Organisation for Economic Co-operation and Development (OECD). This prominent financial organisation, led by former Australian finance minister Mathias Cormann, recently forecasted a cash rate decrease to 3.35% by early 2026. The OECD justifies this anticipated easing of monetary policy due to persistent disinflation and subpar economic growth.
With inflation rates declining and the absence of changes in nominal policy rates since November 2023, real interest rates have been on the rise. The OECD predicts that both headline and core inflation will return below target levels by early 2025, prompting a gradual easing of policy starting next year. Most major Australian banks share this outlook, forecasting four rate cuts in 2025, although ANZ has adjusted its estimate to two.
However, the OECD warns that sustained high inflation could disrupt plans for lowering interest rates. In other economic discussions, both the federal government and opposition are considering limiting immigration to alleviate housing pressures. Yet, the OECD cautions that this could inadvertently impact consumption and exacerbate labour shortages, including for essential sectors like construction. Policymakers must tread carefully to avoid unintended economic consequences while addressing housing issues.