ANZ latest big bank to falter on rate cut forecast

ANZ experts have joined peers at NAB and Westpac in forecasting the first cash rate cut to come in May 2025 - three months later than its previous prediction. 

The smallest of the trio has gone one step further, tipping the Reserve Bank of Australia (RBA) to deliver just two cash rate cuts in 2025, leaving it at 3.85%.

That's compared to three cuts predicted by NAB and four by Westpac, leaving the cash rate at 3.60% and 3.35% respectively by next year's end.

The cash rate influences the cost of doing business for banks and lenders and, therefore, is a major influence on the interest rates charged to borrowers.

ANZ's revision was due to stronger-than-expected employment growth, resilient business conditions, and rising consumer confidence.

"On the balance of risks,we do not rule out a rate cut in February, though," ANZ head of Australian economics Adam Boyton said.

"A lower-than-expected [fourth quarter inflation print] and some softening in the labour market could prompt the RBA to cut in February, especially given that the November board minutes appeared to open the door to an early 2025 easing.

"However, that would require either the data between now and then to print on the downside or the board to act more pre-emptively than its current language suggests."

ANZ's shift has left CommBank alone in predicting a February rate cut.

No cuts until inflation falling 'sustainably' 

RBA governor Michele Bullock reiterated the central bank's stance that it will not cut the cash rate until inflation is moving sustainably lower on Thursday night.

"The word 'sustainably' is important because it recognises that we need to look through temporary factors that influence the headline inflation rate from time to time," she told the Committee for Economic Development of Australia annual dinner.

"Indeed, over the past year, part of the decline in headline inflation has been due to temporary factors such as electricity rebates and declining fuel prices."

For this reason, the RBA has primarily focused on the underlying inflation rate, which excludes price fluctuations in volatile goods and services, such as energy and fuel.

The latest quarterly inflation read saw headline inflation dip into the central bank's target range - 2% to 3% on an annual basis - but underlying inflation remained stubborn at 3.5% year-on-year.

The central bank expects inflation won't sustainably return to its target until 2026, but because monetary policy operates at a lag, it's expected that the cash rate will be cut before then.

The RBA's efforts to reduce inflation are complicated by its dual mandate: prioritising both price stability and employment.

This forces it to tread a 'narrow path,' as lowering inflation often comes at the cost of rising unemployment.

A misstep could push the nation into a recession.

What does ANZ's new prediction mean for home loan holders?

While two, three, or even four cash rate cuts might not seem like a significant financial shift, they can have profound effects on households grappling with mortgage repayments.

As of September, the typical variable interest rate on an outstanding home loan was around 6.30% p.a.

Here's how the repayments on a $500,000, 30-year mortgage could be impacted if the RBA was to cut the cash rate twice, three times, or four times and lenders were to pass on each cut in full:

Interest Rate (p.a.)	Weekly Repayments	Fortnightly Repayments	Monthly Repayments
6.30%	$774	$1,547	$3,095
6.05%	$753	$1,507	$3,014
5.80%	$733	$1,467	$2,934
5.55%	$714	$1,427	$2,855
5.30%	$694	$1,388	$2,777

^{Figures as per Your Mortgage's Mortgage Repayments Calculator}

See also: ANZ slashes special offer variable home loan rates

---

Advertisement

Why wait for a rate cut when you can secure a competitive refinancing home loan today?

Important Information and Comparison Rate Warning

_{Image by Mattinbgn on Wikimedia Commons}