Next week will be a big one for borrowers, with the Reserve Bank of Australia (RBA) set to hold its latest monetary policy meeting to decide on where interest rates go next.
In recent months the market has been seesawing between whether the next move is higher or lower for rates.
So, let's see what could happen when the central bank meets on Tuesday.
Will the RBA lift interest rates?
The good news for mortgage holders is that the economics team at Westpac Banking Corp (ASX: WBC) believe there will be no more rate hikes.
According to its latest economic report, Westpac's chief economist Luci Ellis thinks that inflation is falling at least in line with the RBA's expectations. She commented:
Inflation in the June quarter was broadly in line with our expectations, and a shade below them on some crucial underlying measures. Headline CPI inflation was as expected at 1% in the quarter, while the key trimmed mean measure of trend inflation was a bit below at 0.8% versus our expectation of 0.9%. On a year-ended basis, this represents a small increase in headline inflation (from 3.6% to 3.8%), albeit one that was in line with the RBA's own forecasts. The RBA will look through the base effects driving this and will note that there are no signs of upward momentum in the trimmed mean or monthly outcomes.
What's next?
Relief could be on the way for borrowers. Following this latest inflation data, Ellis is even more confident that interest rates will remain on hold for three more months before being taken lower in November. She said:
The below-consensus [inflation] result cements our expectation that the RBA Board can remain on hold for the time being. As we have previously flagged, another quarter of inflation data should be enough to convince the RBA Board that disinflation is on track and that inflation will be back into the target range on the desired timetable. That would lead the Board to the conclusion that monetary policy does not need to be as tight as it currently is for much longer.
Given the sub-consensus inflation outcome and the run of other data confirming that domestic demand growth is soft, we affirm our November call for the first rate cut, with more conviction than previously.
Westpac is forecasting interest rates to be down to:
- 4.1% in November
- 3.85% by March 2025
- 3.6% by June 2025
- 3.35% by September 2025
- 3.1% by the end of 2025
Here's hoping these forecasts prove accurate.
