After the last year of interest rate rises, many Australians have been left wondering: when will we finally see an end to recent rate hikes, and when will interest rates finally begin to come back down in Australia?
The cash rate, set by the Reserve Bank of Australia (RBA), is currently sitting at 4.35% — the highest level in 11 years. Since the central bank started rate hikes to influence monetary policy in March 2022, the inflation rate has remained above the RBA’s 2%-3% target, and the cost of living has continued to increase.
The ongoing impacts of the COVID-19 pandemic have had a ripple effect on all aspects of the Australian economy. The two years that have followed have seen unprecedented changes.
Higher interest rates have saddled many borrowers with increased repayments on their home loans, with the prospect of further rate increases making many question how many rate rises they can afford to factor into their monthly repayments. Rate hikes paired with high inflation and a competitive housing market have put a strain on the financial situation of many homeowners, as well as created additional barriers to entry for first-home buyers. Mortgage holders coming off of fixed-rate mortgages could face dramatic changes to their loan repayments.
What every Aussie wants to know is: when can we expect lower rates?
Have we reached the peak of interest rates?
General consensus amongst Australian economists is that while interest rate rises have slowed down, we have not yet reached the peak, and there are still more increases to come. The main points up for discussion are what that peak will be and when we will hit it.
Based on an analysis of statements from RBA governor Philip Lowe regarding the board's decisions, chief economists at each of the big banks have their own predictions for how interest rates will move over the next year and beyond. These factor in current labour market levels, inflation rates, and historical interest rate changes.
In April 2024, the cash rate sits at 4.35%. Though inflation rates are declining, they remain higher than targeted by the central banks. Unemployment also remains near a record-low rate.
Predictions from the big banks in October 2023 suggested that we could see rates fall by March 2024. The Big Four predictions were as follows:
- Commonwealth Bank: Economists at CBA are currently predicting that this is the end of this series of rate hikes.
- Westpac: Westpac economists predict that we have seen the last of rate rises for the near future.
- NAB: Predictions from the economists at NAB are that Australians still have another increase before rates steady.
- ANZ: ANZ has reverted back to their original prediction of a long-term hold at 4.10%.
Only NAB was correct in predicting a further rate hike, which came in November 2023, moving the cash rate from 4.10% to 4.35%
When can Australians expect rate cuts, and how low will rates go?
The RBA released a Statement on Monetary Policy n February 2024 which indicated that the RBA is forecasting holding the cash rate at 4.35% until the middle of 2024, targeting a return to 3.2% by the middle of 2026.
This is similar longterm to the predictions of the big banks from October 2023.
Most of the major banks anticipate rate cuts early in 2024, though some anticipate this might be a longer process. This could be a lowering of rates to indicate easing inflation and a softening real estate market. It could also be, in the case of consistent negative economic growth, indicative of a recession.
Big Four bank predictions are as follows:
- Commonwealth Bank: The CBA economists predict rate cuts in the first quarter of 2024, closing out the year at 3.10%. That’s a drop of 1.25 percentage points from their predicted peak.
- Westpac: The current prediction from Westpac’s chief economist, Bill Evans, is that after hitting a 4.60% peak in September, rates will hold until roughly May 2024. After that, they are vague about rate cuts but expect a gradual drop in interest rates over the two years following.
- NAB: NAB predicts that after September 2023, rates will hold until roughly June 2024. They expect to see the year close out with the cash rate at 3.10%, a 1.5 percentage point drop from an anticipated 4.60% peak.
- ANZ: ANZ are more conservative in their predictions, cautioning that we may not see rate cuts until November 2024. This would mean ending 2024 with the cash rate still above 4%.
How can I keep down my home loan repayments?
While rates continue upward, home loan repayments will head in the same direction — especially for those on variable-rate home loans — and it’s essential to have a strategy to cope with rising loan rates.
For those who find the rising rates are making their loan repayments hard to keep up with, there may be merit in seeking financial advice around refinancing. While looking to refinance is a significant step, it could potentially get you a lower rate on your home loan. Remember to check the eligibility requirements around refinancing, which may put restrictions on the refinance loan amount or loan-to-value ratio (LVR).
If you have come from a fixed-rate mortgage to a significantly higher rate, you may also be able to negotiate a lower rate with your lender by contacting them. This may also be possible with some variable rates that have risen along with recent rate hikes.
