The burning question across Australia, especially for the 3.2 million mortgage holders facing a collective debt of $2.2 trillion, is: what will happen to interest rates? Predicting these rates has proven challenging, particularly following former Reserve Bank Governor Philip Lowe’s misleading remark in 2021 about rates remaining stable until 2024.
Current economic indicators suggest that rates, presently at 4.25 per cent, are likely to decrease in the future, although the timing remains uncertain and hinges on inflation trends. While inflation has dropped from its peak of 7.8 per cent in December 2022, it has plateaued recently between 3.5 and 4 per cent. The major banks foresee a potential cut in rates between November this year and May next year.
The consensus suggests that the maximum interest rate might reach 4.35 per cent by 2025 before the Reserve Bank of Australia (RBA) instigates a cut. The RBA’s forecasts indicate a sustained rate until mid-2025, gradually declining thereafter.
Ultimately, interest rates are predominantly influenced by inflation, with the RBA striving to maintain it between 2-3 per cent. Understanding these dynamics will be crucial for Australians navigating their financial futures.