3 days Ago By Aidan Devine
It’s not just one expected interest rate cut – now it’s four. Australian financial markets have begun pricing in four interest rate cuts within the next 12 months – the first such prediction since the Reserve Bank started hiking rates in May 2022. ASX’s RBA Target Rate Tracker, published at the end of each trading day, yesterday revealed the RBA is expected to first cut interest rates by 25 basis points in February, with three cuts more by August.
That would mean the Reserve Bank board making a decision to cut rates at four out of the eight meetings it’s scheduled to have next year. The RBA’s Official Cash Rate currently sits at 4.35 per cent.
The current owner-occupier variable discounted rate sits at 7.07 per cent. Banks cutting rates would save homeowners.
Picture: NCA Newswire The RBA Target Rate Tracker calculates the probability of changes in the Overnight Cash Rate based upon the implied yields of very short term (30-day) interest rate futures. MORE: Worst tradie price hikes exposed It comes as several lenders cut fixed and variable home loan rates for both owner occupiers and investors in early September. Experts said cuts to fixed rates were often an indication that banks expected variable rates to be lower in the coming months.
Mozo money and finance expert Rachel Wastell said these cuts were likely to continue into September. “(They) are a reflection of the growing industry confidence that the RBA’s next move is a cut,” she said. Analysis from comparison group Finder showed that four rate cuts would save the average Aussie homeowners $5,076 per year on mortgage repayments.
Four rate cuts would save the average homeowners about $5000. Finder head of consumer research Graham Cooke advised hopeful homeowners to bear in mind that the expectations of markets were only a prediction. “The ASX is clear on its site that the information is indicative only, meaning that while the market may be pricing in the possibility of four rate cuts, this is not a guarantee that the Reserve Bank will take action,” he said.
“The ASX Target Rate Tracker reflects market sentiment based on short-term interest rate futures, but economic conditions can shift quickly. Homeowners and investors should remain cautious.” MORE: ‘Think carefully’: Australia’s property trap Finder head of consumer research Graham Cooke.
Mr Cooke said four interest rate cuts would change the housing market. “Many households have been feeling the squeeze following 13 rate hikes – a series of rate cuts would save Aussies hundreds of dollars per month on variable-rate home loans,” he said. “(But) it’s important to remember that these predictions are based on probability, and the future is still uncertain.
” Mr Cooke added that rate cuts came with a potential downside for those seeking a new home. “While rate cuts might alleviate some financial pressure on current homeowners, they could also reignite demand in the housing market, potentially driving up property prices again,” Mr Cooke said. “This would make it harder for first-home buyers to enter the market, even with lower borrowing costs.
” Those on soon-to-expire fixed rates would be among the big winners of a succession of rate cuts, Mr Cooke explained. “Homeowners on fixed-rate mortgages might not immediately feel the benefits of the cuts. However, those whose fixed terms are ending soon could see better refinancing options when their loans revert to variable.
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