When Will Interest Rates Come Down? - searchpartyproperty

When Will Interest Rates Come Down?

If you’re among those seeking relief from the burden of high home loan rates, there might be a glimmer of hope on the horizon.

By now, we’ve all heard that inflation has been coming down:

As it stands, a return to target inflation isn’t far away, but perhaps a more pressing concern for the RBA is unemployment and productivity.

The unemployment rate has ticked up to 4.1%, with hours worked declining sharply, as the underutilisation rate has risen to 6.6%. Furthermore, in their quarterly economic update, IFM Investors noted the following:

“Of further concern is the slowdown in employment growth that sits at around 7,300 per month in trend terms while the labour force is expanding by 32,700 people (assuming constant participation). A continuation of this trend would see a strong labour supply overwhelming weakening labour demand – pushing unemployment materially higher.”

It’s a similar story for measures of productivity, with population growth having a huge impact:

As the above chart indicates, recent population growth is the only thing keeping the economy from entering recession territory (defined as two consecutive quarters of negative GDP growth).

Certainly, a concern for the RBA, and an added source of pressure for rates to be cut sooner rather than later.

But when will it happen?

Projections from the big four banks suggest that interest rates could begin to decline again in late 2024.

Big Four Bank Predictions: When the Cash Rate Will Fall Again

In a welcome development for current and prospective homeowners, the big four banks have outlined forecasts indicating the possibility of three to five cash rate cuts between 2024 and 2025. Here’s a breakdown of their predictions:

– Commonwealth Bank of Australia (CBA):

Anticipates the next rate cut in September 2024, with the cash rate expected to decline to 2.85% by June 2025.

– Westpac:

Foresees the next cut occurring in September 2024, with the cash rate projected to fall to 3.10% by December 2025.

– National Australia Bank (NAB):

Predicts the next cut by November 2024, with the cash rate potentially dropping to 3.10% by November 2025.

– ANZ:

Envisions the next cut by December 2024, with the cash rate potentially declining to 3.60% by June 2025.

While there remains some degree of variance among bank predictions, the consensus is certainly that we can expect rate cuts to begin sometime within Q4.

What are other central banks doing?

It’s well known that central banks are regularly in communication with one another and can often follow the lead of policy decisions made elsewhere. For the more prominent central banks, like the Federal Reserve or the European Central Bank, their decisions can act as a sort of benchmark for policymakers around the world.

With that in mind, it can be useful to keep an eye on developments elsewhere. However, with much of Europe and other nations like Japan already experiencing a recession, the charted rate expectations below are interesting:

Despite other nations so far being much tighter with their interest rates than Australia, markets expect the RBA’s eventual rate cuts to be a lot more gradual than those elsewhere.

Want to discuss this further?

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