Great news for mortgage holders and first home buyers! Westpac, one of the leading Australian banks, has revealed its forecast that the Reserve Bank will cut interest rates seven times in 2024 and 2025, providing relief to borrowers after nine consecutive months of rate increases. While there will be three more hikes in March, April, and May, Westpac expects the Reserve Bank to begin cutting interest rates by March 2024 after the economy has been whacked by severe hikes. This move will result in a significant reduction of $643 off monthly repayments on an average $600,000 mortgage.
Westpac chief economist, Bill Evans, assures borrowers that the bank expects the economy to stagnate in the second half of 2023, and there will not be sufficient progress in bringing inflation into line with the target before the end of 2023 to accommodate earlier rate cuts. Evans predicts that the Reserve Bank will cut rates by a quarter of a percentage point by March 2024, bringing the cash rate back down to 3.85 per cent. Rates would fall by a further 25 basis points by the end of June 2024, reducing the cash rate to 3.6 per cent. Following that, a further drop of the same size in September will take rates back to where they are now, at 3.35 per cent. The sequence of cuts will then continue, bringing rates to 2.35 per cent by the September quarter of 2025.
This positive forecast for borrowers will be a relief to many who have already seen their monthly repayments soar by 42 per cent to $3,284 from $2,306, based on a Commonwealth Bank variable rate rising to 5.17 per cent, up from 2.29 per cent in early May. Another three rate rises would add another $283 to monthly repayments, taking them to $3,567, as a Commonwealth Bank variable rate rose to 5.92 per cent to reflect a 4.1 per cent RBA cash rate. However, the 1.75 percentage points of rate cuts in 2024 and 2025 would reduce that to $2,924, a $643 drop from the expected rate rise cycle peak in May 2023. This will see a Commonwealth Bank variable rate fall to 4.17 per cent, as it tracks the RBA cash rate dropping to 2.35 per cent.
Based on an article in the Daily Mail.