Rate cuts? Pencil them in for 2025

Put the party pies on ice and postpone those rate-cut celebrations for a while yet. The much-touted rate cuts we’ve been waiting for may not arrive until 2025. Here’s why rates could be staying higher for longer, and how to take action yourself.

June saw the Reserve Bank of Australia (RBA) keep the cash rate on ice – yet again.

Rates haven’t budged since November last year, and with the RBA not due to make another rate call until August, interest rates will remain in a holding pattern for at least two more months.

For home owners struggling to manage their home loan at current interest rates, it begs the question: ‘what happened to all the talk about rate cuts in 2024?’

Here’s what’s happening.

One reason why rates aren’t moving

Just a few months ago, some of our biggest banks were predicting interest rates would start to slide sooner rather than later.

The Commonwealth Bank and Westpac, for instance, expected rate cuts as early as September.

That’s now looking increasingly unlikely.

The reason lies with inflation.

The RBA is intent on getting inflation down to 2-3%.

Unfortunately, inflation is not playing along.

It’s currently sitting at 3.6%. So close, but not quite there.

When are rates likely to fall?

The RBA expects it could be “some time yet” before inflation is happily nestled in that 2-3% range – the point at which long-awaited rate cuts may start to kick in.

It’s not much of a date for home owners to work towards, though the big banks have a few time frames of their own.

Westpac and NAB now both see rates heading south from December. And while CommBank recently stated it expected rates to fall in November, there are signs it’s losing hope for a 2024 rate cut.

“Given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the runway is shortening between now and November,” CBA’s head of Australian economics, Gareth Aird, said.

“The risk to our call is increasingly moving towards a later day for an easing cycle.”

Meanwhile, ANZ doesn’t expect a rate cut before 2025. Ditto Citi economists and a growing number of other experts.

Long story short, even if we do get a December 2024 RBA rate cut, it’s probably fair to say we won’t see those cuts flow through to home loans until early next year.

And a note of caution: the RBA mentioned in its June statement that it is “not ruling anything in or out”.

It’s a grim reminder that a rate cut is not guaranteed before another rate hike.

This is why it’s so important to take action of your own.

How to manage higher rates

Revisiting your household budget, identifying areas where you can cut back, and tucking spare cash into an offset account to save on loan interest are all steps worth considering.

And don’t forget, tax cuts for 13.6 million Australians kick in from 1 July.

That could provide extra cash each pay day to help pay off your home loan.

It’s also a good idea to speak to us for a home loan review.

We can let you know if you still have the loan that’s right for your needs, or if you could save by switching – without having to wait for RBA rate cuts.

Better still, rising national property values may mean you could be in a great position to refinance.

Talk to us today for more tips on managing your home loan repayments and possibly trimming your loan rate. It may mean the party pies can come out sooner!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.