Commonwealth Bank (CBA) economists are predicting the Reserve Bank (RBA) will make six interest rate cuts by mid-2025, with cuts needed this year to stop unemployment from rising too high.
Australia’s biggest bank expects the central bank will start cutting interest rates in September this year, reducing the cash rate by 0.75 per cent in total by the end of 2024.
This means borrowers could receive three rate cuts by this Christmas - in September, November and December - provided their bank passes along the reductions.
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“Our base case sees the RBA commence an easing cycle in September 2024 (75 basis points of rate cuts by end-2024 and a further 75 basis points of cuts in H1 2025,” CBA head of Australia economics Gareth Aird said.
CBA had previously predicted three rate cuts by the end of 2024 and another three rate cuts in the second half of 2025. This update brings the second trio of rate cuts forward to the first half of next year.
The prediction would see the RBA cash rate fall from 4.35 per cent to 3.6 per cent by December, and down to 2.85 per cent by mid-2025.
Interest rates have skyrocketed from a record low of 0.10 per cent since May 2022, adding $1,349 more per month to repayments on a $600,000 mortgage.
Warning from CBA CEO
While CBA economists predict the RBA will start cutting rates from September this year, CEO Matt Comyn said there was a possibility they wouldn’t come until 2025.
Speaking to the Australian Financial Reviewthis week, Comyn said there was “certainly a possibility that could be delayed” until the new year, after US inflation data came in stronger than forecast in January at 3.1 per cent.
“[Rate cuts] will be data-driven and, clearly, inflation coming down should be the highest priority,” Comyn said.
“There is some uncertainty about exactly when rates will come down and what the pace of the reductions might be.”
In Australia, inflation fell to 4.1 per cent over the 12 months to the December quarter. CBA economists expect underlying inflation will fall to the top of the RBA’s 2-3 per cent target band in the second quarter of this year.
The official cash rate (OCR) is the term used in Australia and New Zealand for the bank rate and is the rate of interest which the central bank charges on overnight loans between commercial banks.
https://en.wikipedia.org › wiki › Official_cash_rate
fall from 4.35 per cent to 3.6 per cent by December, and down to 2.85 per cent by mid-2025. Interest rates have skyrocketed from a record low of 0.10 per cent since May 2022, adding $1,349 more per month to repayments on a $600,000 mortgage.
Here's where three experts predict mortgage rates are heading: Around 6% or below by Q1 2025: "Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%," says Haymore. "By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower."
The Fed said Wednesday it's still watching and waiting for more good news on inflation and jobs before considering a rate cut. But it is forecasting three rate decreases by the end of 2024.
Inflation should then track gradually lower to 3.1% by June 2025, finally sinking within the preferred rate by December 2025 at 2.8%. The public won't see those revised estimates until 7 May, after the RBA releases its verdict on the cash rate.
The Fed raised the rate 11 times between March 2022 and July 2023 to combat ongoing inflation. After its December 2023 meeting, the Federal Open Market Committee (FOMC) predicted making three quarter-point cuts by the end of 2024 to lower the federal funds rate to 4.6%.
The nation's top economists say the Fed is most likely to keep interest rates higher than 2.5 percent — often considered the “goldilocks,” not-too-tight, not-too-loose level for its benchmark federal funds rate — until the end of 2026, Bankrate's quarterly economists' poll found.
In its March Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
Driving the news: The median Fed official now expects interest rates to be somewhat higher in 2025 and 2026 than they did in December — anticipating fewer rate cuts will be justified in the coming two years. The median projection for the longer-run rate also ticked up, to 2.6% from 2.5%.
Now, Fannie Mae expects rates to be a half-percent higher (6.4%) by the end of this year, and remain above 6% for another two years, gradually declining to a flat 6% by fourth-quarter 2025. Freddie Mac's latest data shows the average rate for a 30-year fixed mortgage is currently around 6.74%.
30-year mortgage rates are currently expected to fall to somewhere between 6.1% and 6.4% in 2024. Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year.
On the basis of these inflation forecasts, average consumer price inflation should be 3.3% in 2024 and 1.9% in 2025, compared to 4.06% in 2023 and 9.59% in 2022.
Mortgage giant Fannie Mae likewise raised its outlook, now expecting 30-year mortgage rates to be at 6.4 percent by the end of 2024, compared to an earlier forecast of 5.8 percent.
The forecasts are conditioned on a path for the cash rate broadly in line with expectations derived from surveys of professional economists and financial market pricing; the cash rate is assumed to remain around its current level of 4.35 per cent until the middle of 2024 before declining to around 3.2 per cent by the ...
One reason being that as the Federal Reserve begins to cut rates, the bond market is expected to become less volatile, leading to a slight decline in mortgage rates. The average 30-year fixed mortgage rate as of Friday is 6.91%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.
Sure, mortgage rates could fall to 3% at some point, but chances are that's not going to happen anytime soon. Moreover, waiting for rates to drop before you buy your home could backfire. Instead, consider buying your house now and refinancing your mortgage when rates improve.
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
Now, Fannie Mae expects rates to be a half-percent higher (6.4%) by the end of this year, and remain above 6% for another two years, gradually declining to a flat 6% by fourth-quarter 2025. Freddie Mac's latest data shows the average rate for a 30-year fixed mortgage is currently around 6.74%.
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
On 21 March 2024, the Bank of England held the base rate at 5.25% for the fifth time in a row. Financial markets are currently predicting the first cut in interest rates will be in June 2024, falling to around 3% by the end of 2025, according to the latest forecasts from Capital Economics.
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