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With Halloween just around the corner, the scariest trick or greatest treat for many Australians could come from the Reserve Bank of Australia (RBA) and its upcoming cash rate decision.
While the cash rate remained at 4.35% last month, the upcoming decision carries significant implications for homeowners, first home buyers, and investors alike.
The lead-up to the November 6 announcement raises questions about what, if anything, has changed in the economic landscape that would cause the RBA to shift from its current holding pattern. Will the RBA deliver a trick or a treat?
Where are we now?
The cash rate has now been on hold for nearly 12 months. In November 2023, the RBA lifted the cash rate by 0.25%, to 4.35%, and it has remained there.
Despite the RBA’s efforts, inflation has been ‘sticky’, stubbornly remaining above their target range of 2-3%. Wages and unemployment levels also took their time to approach the RBAs preferred figures, leaving many Australians clinging to their savings as the RBA froze the cash rate and major banks deferred predictions of rate decreases into 2025.
Until recently, the threat of rate hikes remained firmly on the agenda. However, at the RBA’s September announcement, we saw a slight shift. The RBA remained determined to take steps against inflation but they did not discuss rate hikes directly.
This, along with the drop in headline inflation to 2.7%, left many with a feeling that the RBA “is a bit more firmly on hold than before”, as Luci Ellis, Westpac Group’s Chief Economist put it.
Even before the September announcement, some lenders had begun to drop rates on certain loans, a trend that has continued over the last month. This might seem like a slight shift but it does indicate that they expect the next change to be a rate drop, leading many to hope that rate hikes might remain a thing of 2023.
Are rate cuts really on the horizon?
At the moment the market suggests we’ll hold at 4.35% this November. The RBA Rate Tracker, an indicator of market expectation, gives a 90 % chance that rates will hold at the November announcement. With inflation dropping, consumer confidence stabilising, and employment figures showing improvement, a hold seems to be in line with the RBA’s strategy to keep inflation within the target range without introducing abrupt financial shocks.
Another indicator comes from the Big 4 banks – all four major lenders continue to predict a hold. Commonwealth Bank suggests a December rate cut at the earliest, while NAB holds out until May 2025.
Predictions from Australia’s Major Bank Economists
| Bank | Cash Rate Prediction | Rate Cut Prediction | Final 2025 Cash Rate |
| NAB | Hold – 4.35% | May 2025 | 3.60% |
| Commonwealth Bank | Hold – 4.35% | December 2024 | 3.10% |
| ANZ | Hold – 4.35% | February 2025 | 3.60% |
| Westpac | Hold – 4.35% | February 2025 | 3.10% |
As Mark Bouris pointed out on Property Insights last month, “There’s still an expectation of a rate cut by the Reserve Bank of Australia, but it’s unlikely to happen before the end of the year, which means mortgage holders are going to have to wait longer.”
For Australians with existing mortgages, these predictions hold significant weight. The higher cash rate has directly impacted mortgage rates, leading to increased repayments for many. The suggestion that we may have reached the peak cash rate will ease some stress out of the next few months but there’s no doubt that these predictions put rate drops on a later timeline, leaving homeowners facing continued financial strain.
What does this mean for homeowners?
While lower rates aren’t likely to appear with the Halloween candy this year, it’s definitely possible that Australians will see rate cuts in the next few months. If you have a home loan, or are looking to buy that first home or adjust your real estate investments, it’s likely time to start taking this into consideration.
Most importantly to many, the cash rate is predicted to drop by 0.25% increments once it begins to shift. This will mean savings of hundreds to thousands of dollars for many homeowners over the next year.
Fixed rate cuts have begun and are likely to continue to roll in over the next few months as a number of lenders attempt to pre-empt the rate cutting cycle. This might make refinancing a more interesting option for some, and certainly help ease the repayment burden. Another option may be to look at fixing a portion of your loan. This could lock in some immediate savings and still allow you to benefit from future rate cuts.
So while it’s still unclear whether the RBA’s next cash rate decision could be a trick or a treat, there’s hope for some repayment relief in 2025. And, if you’re unsure about how to take advantage of current shifts, reach out to your mortgage broker for support and make sure you are in the best position possible with your current or future loan.
