Next week will be a big one for homeowners, with the Reserve Bank of Australia (RBA) set to meet for the first time this year.
While many Australians were hopeful that an interest rate cut was coming in previous meetings, this is the first time that the odds are firmly stacked in the favour of borrowers.
In fact, according to the latest ASX 30 Day Interbank Cash Rate Futures February 2025 contract, the market has priced in a 90% probability of the cash rate being cut from 4.35% to 4.1%.
Let's see if the economics team at Westpac Banking Corp (ASX: WBC) agree with the market's view on Tuesday's meeting.
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Will the RBA cut interest rates next week?
The good news is that the big four bank's latest weekly economic report reveals that its chief economist, Luci Ellis, believes that the central bank will cut rates next week.
Given that Ellis was previously an assistant governor at the RBA, it is fair to say that she has as good an idea of when Governor Michelle Bullock will make a move as anyone out there.
The latest weekly report states the following:
Westpac anticipates that the RBA Board will cut the cash rate by 25bps to 4.10% at its upcoming policy meeting. The Q4 CPI revealed headline inflation rose 0.2% (2.4%yr) and trimmed mean inflation rising 0.5% (3.2%yr), or 2.7% on a six-month annualised basis. We saw downside risk to our own forecast at the outset, and in the event, that materialised.
Westpac then believes that more rate cuts are on the way with one cut per quarter in 2025. This will eventually take interest rates to 3.35%, where the bank's economics team expects it to sit until at least the end of 2026. It adds:
In our view, this better-than-expected read on inflation – in the context of all other data on the domestic economy and the labour market – tips the balance in favour of the RBA embarking on its policy normalisation journey in February. This path is likely to be gradual, with just one 25bp cut per quarter to Q4 2025, bringing the cash rate to a broadly neutral 3.35%.
All in all, there have been a few false starts over the past six months, but it finally looks like relief is coming for homeowners. All eyes will be on the RBA on Tuesday afternoon.
