Cash rate to remain on hold next Tuesday as ANZ pushes rate cuts into 2025

The RBA is set to leave the cash rate on hold at 4.35 per cent following its meeting next week, with ANZ today now saying it does not believe the first rate cut will come until 2025.

Previously, ANZ’s forecast had the first cut schedule for November this year, with three cuts in total.

Today the bank’s economic team has said it still expects the next move by the RBA will be a cut, with three in total in the easing cycle, however, it now expects the first cut will not be until February 2025, with two more cuts pencilled in for April 2025 and the fourth quarter of 2025.

ANZ cash rate forecast

Source: ANZ

The other three big bank economic teams are still predicting the first cash rate cut will be in November of this year.

Current big four bank cash rate forecasts

Source: RateCity.com.au

RBA’s next move still likely to be down, not up

While the Board is likely to consider the case for a hike at next week’s meeting, as they did in the May meeting, the central bank will almost certainly decide to continue its wait-and-see approach, keeping the cash rate on hold at 4.35 per cent.

After the last meeting on 7 May, Governor Bullock said the RBA could not rule out the possibility of a cash rate hike, however, she also confirmed that the RBA believes we are at the peak of the cash rate cycle, despite the slower than expected progress in CPI, which the RBA expects to rise to 3.8 per cent per annum in the next round of quarterly data.

The latest monthly CPI indicator data, released two weeks ago for the month of April found annual inflation had ticked up for the second month in a row and was now sitting at 3.6 per cent, the highest annual rate since November of last year.

What does this mean for borrowers?

Borrowers should expect the cash rate to remain on hold for the remainder of the year, but plan for one more hike, just to give their budget a buffer, in the less likely event one should eventuate.

However, how much they shell out in mortgage repayments through to the end of the year will depend on their willingness to seek out a competitive rate.

RateCity.com.au estimates that a complacent variable rate owner-occupier, who has not negotiated their loan since the start of the hikes is likely to be on a rate of around 7.11 per cent.

Yet RBA data shows the average owner-occupier is on a variable rate of just 6.38 per cent.

Borrowers need not stop there. RateCity.com.au data shows there are still 28 lenders offering at least one variable rate under 6 per cent, excluding green loans, introductory rates and first home buyer specials.

RateCity.com.au research shows that if an owner-occupier refinanced from a rate of 7.11 per cent to a rate of 5.99 per cent, with $500,000 owing and 25 years remaining, they could see their monthly repayments drop by $351 and potentially save as much as $10,029 in interest charges in the next two years, even after paying an estimated $1,150 in switch costs.

Cost of complacency

Monthly repayments for someone with a $500,000 loan, paying principal & interest with 25 years remaining at various rates

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on their $500,000 debt. Assumes rates move in line with ANZ’s current cash rate forecast. *includes $1150 in switching costs for the borrower moving to a rate of 5.99%. It is assumed the average borrower will haggle with current lender and therefore no switch costs apply.

Lowest variable rates on RateCity.com.au

Source: RateCity.com.au. Notes: excludes introductory rates, green loans and first home buyer specials. *Essential workers only.

RateCity.com.au research director, Sally Tindall, said: “ANZ’s change to its cash rate forecast is a timely reminder for borrowers to think twice when factoring cash rate cuts into their budgets, unless they’re prepared to go out there and get one themselves.”

“While Governor Bullock has said repeatedly that the cash rate is in restrictive territory – and therefore likely to go down – not even the RBA knows exactly when that will be,” she said.

“The one thing we know for certain is that the RBA is not going to start cutting the cash rate prematurely. It will want to be absolutely sure the cash rate is going to return to target in a reasonable timeframe before it starts sharpening its knife.

“If you’ve got a mortgage, put any chatter of rate cuts out of your mind and focus on building a buffer into your mortgage where you can.

“While the next move for the cash rate is still, on balance, likely to be down, not up, it’s looking less likely that relief from the RBA in the form of a cash rate cut will come until at least 2025.

“A lot of borrowers might think they’re in mortgage prison, or that switching isn’t worth the extra cost. Check that’s actually the case because if you can lock in a rate that starts with a 5 you’ll know you’re not being complacent,” she said.

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