Last month, the Reserve Bank of Australia (RBA) gave mortgage holders a big lift when it cut interest rates for the first time in years.
The central bank took the cash rate 25 basis points lower from 4.35% to 4.1%.
But the RBA isn't expected to stop there, with a number of economists tipping 2 to 3 more rate cuts before the year is out.
So, with the next RBA meeting coming on Tuesday, borrowers are no doubt hopeful that more relief could be just days away.
Will the RBA cut interest rates next week?
Unfortunately, the market sees little chance of a rate cut on April Fool's Day.
According to the latest RBA Rate Indicator, there is only an 8% expectation of the RBA taking the cash rate down to 3.85% at next week's meeting.
And while the market doesn't always get it right, the economics team at Westpac Banking Corp (ASX: WBC) believes it is calling it correctly this time.
According to its latest Westpac Weekly economic report, the bank's chief economist, Luci Ellis, doesn't expect the central bank to make any moves at this meeting. Ellis said:
We are sufficiently confident that the RBA will keep rates on hold on 1 April that I will be writing my post–meeting note from London. We do not expect any surprises from the RBA this meeting that would require spending the early hours of the London morning trying to work out what is going on.
But it won't be long until the next interest rate cut according to Ellis. She adds:
While we still expect a rate cut in May, back–to– back cuts in February and April were never on the table. The RBA was too hawkish in its rhetoric last month for that, and the Board made clear that last month's cut did not foreshadow more. Cutting again at the April meeting would therefore be damaging to its credibility.
How many more cuts this year?
The good news for borrowers is that Ellis believes that there will be three more cuts this year, bringing the total to four. She explains:
Our own view of the outlook is not wildly different, with trimmed mean inflation cycling around the desired level of 2.5%, just 0.2ppts below the RBA's forecasts. We also expect a small lift in the unemployment rate, to 4.5% compared with the RBA's 4.2% forecast, which is barely above the current level of 4.1%. (It is worth noting that Treasury's Budget forecasts also have unemployment staying at 4¼% out to 2026/27.) However, our forecasts diverge enough to have different policy implications. If our forecasts are broadly correct, then the RBA is likely to cut three more times this year, bringing the cash rate to 3.35%.
Time will tell if that is the case, but here's hoping it is for mortgage holders.
