Australia's major banks are anticipating a reduction in the official cash rate by the Reserve Bank of Australia (RBA) at its upcoming February meeting. Weaker-than-expected inflation figures and a softening housing market are driving the predictions.
Australia's largest banks are unanimously anticipating a reduction in the official cash rate by the Reserve Bank of Australia ( RBA ) at its upcoming February meeting. National Australia Bank (NAB) announced on Thursday that its prediction aligns with its competitors, citing confirmed weaker-than-anticipated price growth and a softening outlook for housing costs.
While the RBA has maintained a steady stance since November 2023, aiming to curb inflation by keeping the cash rate unchanged, a potential decrease would offer significant relief to borrowers grappling with elevated mortgage repayments. ANZ anticipates two cash rate cuts in a potential cycle, while Commonwealth Bank of Australia (CBA) and Westpac predict four and NAB forecasts five reductions, respectively. Recent inflation figures released on Wednesday provided compelling evidence for economists to believe the RBA would consider cutting rates. The underlying inflation rate for the December quarter eased to 3.2 percent, the lowest level since late 2021, according to the Australian Bureau of Statistics (ABS). This represents a decline from the 3.6 percent recorded in the preceding quarter. Moreover, the Consumer Price Index (CPI) exhibited a modest 0.2 percent increase in the December quarter and a 2.4 percent annual rise. The RBA utilizes the trimmed mean, which excludes the most extreme price fluctuations, to measure underlying inflation. This metric grew by 0.5 percent in the December quarter, as reported by the ABS. Financial market participants have already factored in at least three 0.25 percent rate reductions this year. CBA's head of Australian economics, Gareth Aird, projects four 0.25 percent cuts in 2025, resulting in a cash rate of 3.35 percent. A single 0.25 percent reduction, if passed on by banks, would lead to a decrease in monthly repayments on a $600,000 mortgage by $92, according to analysis from financial comparison site Canstar. For a loan of $1 million, borrowers would experience a monthly saving of $154. This calculation is based on an owner-occupier repaying principal and interest on the average variable rate of 6.33 percent, with 25 years remaining on the loan. Should this same cut be applied to the average new customer variable rate, it could potentially fall below 6 percent, from its current level of 6.24 percent
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