Westpac has projected that the Reserve Bank of Australia (RBA) will implement four interest rate cuts over the coming year, with the first reduction anticipated as soon as August. While the central bank is expected to maintain current rates at its upcoming meeting, Westpac forecasts a decrease of 0.25 per cent in August and again in November, followed by two additional cuts in early 2024 due to a more favourable inflation outlook.
Luci Ellis, the Chief Economist at Westpac, anticipates that the final two rate cuts could occur in February and May, or potentially as early as December, particularly if inflation remains at 2.4 per cent and the labour market shows signs of weakness. If these cuts materialise, they would reduce the cash rate from its current level of 3.85 per cent to 2.85 per cent, a figure Ellis describes as the lower boundary of the neutral range, which hasn’t been seen since November 2022.
Ellis remarked that while it is conceivable for the rate cuts to happen more rapidly than currently projected, such decisions will depend significantly on the evolving data regarding inflation and employment. She also warned that the RBA is typically cautious and does not favour making consecutive cuts.
Among the major banks, Westpac’s forecast stands as the most optimistic, contrasting with NAB’s expectation of three cuts and more conservative predictions of two cuts from the Commonwealth Bank and ANZ. Notably, three out of the four major banks expect the first reduction to occur in August, while NAB has suggested that it might happen in July.
Should Westpac’s predictions hold true, Canstar estimates that homeowners with a $600,000 mortgage could see their monthly repayments decrease by approximately $349. This would provide significant financial relief for households currently facing economic pressures. However, Canstar’s Data Insights director, Sally Tindall, cautioned that these projections are not guaranteed, indicating that while the timing of the next cut remains uncertain, at least one more reduction seems plausible at this point.