Last week was a big one for homeowners with the Australian Bureau of Statistics (ABS) releasing the inflation data for the month of November.
According to the release, the Australian monthly consumer price index rose at an annual pace of 2.3% in November, which is up from 2.1% the previous month and was just a touch above market forecasts of 2.2%.
However, more importantly, the trimmed mean, which is a closely watched measure of core inflation, fell an annual to 3.2% from 3.5%. This means that it is closing in on the Reserve Bank of Australia's (RBA) target band of 2% to 3%.
This has sparked hopes that interest rate relief is on the way for borrowers with many believing that a rate cut is now coming in February.
Will the RBA cut interest rates next month?
The good news for mortgage holders is that the market is pricing in a high probability of an interest rate cut at the 4 February meeting.
The ASX 30 Day Interbank Cash Rate Futures February 2025 contract was last trading at 95.73, indicating a 78% expectation of an interest rate decrease to 4.1% at the meeting.
But what does the economics team at Westpac Banking Corp (ASX: WBC) think about this? Let's see what it is forecasting for the cash rate.
Westpac predicts first rate cut
Firstly, the most recent Westpac Weekly economic report doesn't factor in the latest inflation data, so these forecasts could change in the next couple of weeks when the bank assesses recent updates.
Its chief economist, Luci Ellis, said the following after the last cash rate meeting:
While the RBA's decision to leave the cash rate unchanged at 4.35% was widely anticipated, there were noteworthy shifts in language in the decision statement. Most poignant was the removal of the "not ruling anything in or out" guidance that stood in place for the much of this year, suggesting risks to the outlook are becoming more balanced. Indeed, the Board also made it known that it is "gaining some confidence that inflationary pressures are declining in line with [their] recent forecasts", and that it is relatively less concerned about upside inflation risks.
As things stand, Ellis currently thinks that May is the most likely time for a cut, but is not ruling out one in February. She adds:
An interest rate cut in February or April cannot be entirely ruled out; but on balance, May remains the most likely candidate for the start of the normalisation cycle.
