Australian homeowners have been dealing with consistently high interest rates over the past few years, causing a financial strain on many. However, recent predictions from major banks suggest that relief may be on the way.
The Reserve Bank of Australia (RBA) has been steadily increasing interest rates, resulting in the average borrower with a $600,000 mortgage paying $1,155 more per month than a year ago. As a result, many Australians are eagerly anticipating the prospect of lower interest rates.
While most major lenders anticipate the cash rate to reach a peak of 4.1% in May, Commonwealth Bank (CBA) believes that the rates will not go that high and will fall shortly after reaching their peak. CBA's Australian chief economist, Gareth Aird, predicts that the RBA's tightening cycle could slow the economy faster than expected, prompting the RBA to halt the rate hike earlier than others are predicting.
According to CBA, inflation is expected to slow earlier than expected, which could lead to interest rate hikes towards the end of the year. Aird anticipates a top rate of 3.85% and a 50 basis point policy cut in the fourth quarter of 2023. Additionally, he predicts a 100 basis point rate cut in mid-2024.
However, Westpac's chief economist, Bill Evans, expects that the RBA's rate cut will be delayed after raising the cash rate in March, April, and May, and predicts a series of rate hikes early next year. Evans believes that the 0.1% cash rate is deep in contraction territory, and a pause is appropriate.
NAB's Chief Economist, Alan Oster, predicts that the cash rate will peak at 0.1% in May and begin to decline in early 2023 before falling to around 3%. Oster believes that the RBA will start cutting interest rates in February next year, with around 100 basis points cut over the next six months.
On the other hand, ANZ offers a gloomier outlook. They argue that the impact of rising interest rates has not weakened the economy enough for the RBA to cut rates any time soon.
ANZ senior economist Felicity Emmett said that the nascent recovery in house prices suggested rising interest rates had not yet dampened demand enough to be confident inflation would return to the target range within a reasonable time frame. ANZ expects the rates to peak in May, but they believe rates will need to be higher for longer before the RBA can justify a cut.
Overall, Australia's big four banks have varying predictions on potential rates this year. Some, such as CBA and Westpac, believe the RBA will cut rates early next year, while others, such as ANZ, predict that rates will be delayed. Regardless of the banks' predictions, many borrowers struggling with high mortgage payments are hoping for a significant drop in interest rates soon.
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