Next week could potentially be a big one for homeowners, with the Reserve Bank of Australia (RBA) meeting for the final time this year to decide on interest rates.
But what are the odds of the central bank cutting interest rates? Let's see what could happen.
Will the RBA cut interest rates next week?
Unfortunately, the general consensus is that the RBA will not be delivering borrowers an early Christmas present at Tuesday's meeting.
According to the latest cash rate futures, the December 2024 contract was trading at 95.675, which indicates that there is only a 9% expectation of an interest rate decrease to 4.1% at the next RBA Board meeting.
Those same futures suggest that the first interest rate cut could be coming by April. So, while there is unlikely to be any relief this side of the new year, it may not be too long until those mortgage repayments get a little easier.
But does Westpac Banking Corp (ASX: WBC) agree with the market? Let's see what the banking giant's economics team is saying about next week and next year.
'The largest real income shock since the Great Depression'
The chief economist of Australia's oldest bank, Luci Ellis, notes that Australian households have been doing it very tough this year. She said:
Australian households have been hit by the largest real income shock since the Great Depression. And, although tax cuts and declining inflation boosted real incomes in the September quarter, other sources of income were weak. No wonder the spending response to those tax cuts was so anaemic and private demand has shown essentially no growth in recent quarters.
However, Ellis does not expect the RBA to take any action next week. She is predicting that interest rates will remain unchanged at 4.35%. The chief economist said:
[W]hen the RBA Board leaves the cash rate unchanged next week, it is also likely to keep its messaging similar to recent RBA communications. While there is an argument to pivot the language to signal that they are getting closer to the point of cutting rates, we do not expect that they will.
But how close are we? As I mentioned at the top, the market expects the cash rate to be at 4.1% by April next year.
Westpac is a month behind on this and expects the first cut to interest rates to take place in May. It then expects a series of cuts to reduce the cash rate by 100 basis points (1%) over the course of 2025. Ellis adds:
[…] we instead believe the RBA are likely to retain a familiar tone consistent with recent communications. This will give the RBA more time to assess the sustainability of the deceleration in inflation over the coming months. We continue to expect the first rate cut to be delivered in May, with a 100bps of cumulative easing anticipated over 2025.
Ellis then expects the cash rate to remain at 3.35% until at least the end of 2026, which is where the bank's forecasts end.
