Rate cuts? Pencil them in for 2025

The rate cuts we’ve been looking forward to might be delayed until 2025. Discover why interest rates might stay higher for an extended period and explore the steps you can take to handle your home loans in the current environment.

June saw the Reserve Bank of Australia (RBA) keep the cash rate on ice – yet again. Rates haven’t budged since November last year, and with the RBA not due to make another rate call until August, interest rates will remain in a holding pattern for at least two more months. For home owners struggling to manage their home loan at current interest rates, it begs the question: ‘what happened to all the talk about rate cuts in 2024?’ Here’s what’s happening.

One reason why rates aren’t moving

Just a few months ago, some of our biggest banks were predicting interest rates would start to slide sooner rather than later. The Commonwealth Bank and Westpac, for instance, expected rate cuts as early as September. That’s now looking increasingly unlikely. The reason lies with inflation.

The RBA is intent on getting inflation down to 2-3%. Unfortunately, inflation is not playing along. It’s currently sitting at 3.6%. So close, but not quite there.

When are rates likely to fall?

The RBA expects it could be “some time yet” before inflation is happily nestled in that 2-3% range – the point at which long-awaited rate cuts may start to kick in. It’s not much of a date for home owners to work towards, though the big banks have a few time frames of their own.

Westpac and NAB now both see rates heading south from December. And while CommBank recently stated it expected rates to fall in November, there are signs it’s losing hope for a 2024 rate cut.

“Given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the runway is shortening between now and November,” CBA’s head of Australian economics, Gareth Aird, said. “The risk to our call is increasingly moving towards a later day for an easing cycle.” Meanwhile, ANZ doesn’t expect a rate cut before 2025. Ditto Citi economists and a growing number of other experts.

Long story short, even if we do get a December 2024 RBA rate cut, it’s probably fair to say we won’t see those cuts flow through to home loans until early next year. And a note of caution: the RBA mentioned in its June statement that it is “not ruling anything in or out”. It’s a grim reminder that a rate cut is not guaranteed before another rate hike. This is why it’s so important to take action of your own.

How to manage higher rates

Revisiting your household budget, identifying areas where you can cut back, and tucking spare cash into an offset account to save on loan interest are all steps worth considering.

Remember tax cuts for 13.6 million Australians take effect from 1 July, potentially providing extra cash each pay day to help manage your home loan.

With changing market conditions, a home loan review can reveal opportunities to save. Our Lending Solutions specialists can help you determine if your current loan remains the best fit or if switching could offer savings – without having to wait for RBA rate cuts. Alternatively, rising national property values may provide a good opportunity to refinance.

Reach out to our team to receive expert guidance on managing your home loan repayments and potentially reducing your loan rate.

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