When will rates drop again

Big four bank predictions: when the cash rate will fall again

According to the latest forecasting models from the big four banks, the cash rate may move as follows:

• CBA: Reach 2.60% by November 2022, then drop to 2.10% by November 2023
• Westpac: Reach 3.35% by February 2023, then drop to 2.35% in 2024
• NAB: Reach 2.85% by November 2022, staying steady into 2023-24
• ANZ: Reach 3.35% by November 2022, then drop to 2.85% in late 2024

Two of the four big four banks (Westpac and ANZ) believe that the cash rate, and interest rates on home loans, should begin to decrease by late 2024. CommBank has painted an optimisic picture of a cash rate drop by late 2023. But only NAB has forecast that the cash rate will remain unchanged into 2023-24.

Head of Australian Economics at ANZ, David Plank, recently said that the chances of the RBA cutting the cash rate in 2023 is “extremely low”. 

“I struggle with the view that the RBA will be in a position to ease with unemployment in the low threes and wage growth accelerating above 3.5 per cent,” said David Plank. 

The latest cash rate hikes have mostly come as a result of higher inflation, amongst other macroeconomic factors. The RBA has suggested it expected inflation to peak around Christmastime, potentially hitting 7.75%. It is unlikely that interest rate cuts will happen until inflation is reined in.

A recent RBA meeting saw board members suggest that “forecasts were conditioned on a path for the cash rate derived from surveys of professional economists and financial market pricing, with the cash rate assumed to increase to around 3 per cent by the end of 2022, and then decline a little by the end of 2024.”

That being said, it’s important to keep in mind there is no set rule to when the RBA is likely to cut the cash rate again. Conditions could change in a way that favours a lower rate environment sooner, or much later, than predicted. Without a crystal ball it is hard to pinpoint an exact date, so it may be worthwhile keeping up to date with the latest financial news in the meantime.

article by Rate city September 2022