Next week will be another big one for homeowners with the Reserve Bank of Australia (RBA) set to hold its latest cash rate meeting.
With inflation under control, there is speculation that the central bank will take interest rates lower to 3.6% from 3.85%.
But is that likely? Let's see what economists at Westpac Banking Corp (ASX: WBC) are saying about next week's meeting.
Westpac on interest rates
The good news for borrowers is that Westpac thinks that there is a chance that the RBA will cut interest rates at Tuesday's meeting. Though, it sees it as far from guaranteed.
The chief economist of Westpac, Luci Ellis, used to work for the RBA so has a good idea of what is going through the mind of RBA governor Michele Bullock.
Commenting on the difference between this meeting and May's meeting, Ellis said:
This time around, the question boils down to, "could you front a media conference and explain why you decided to wait another five weeks to cut rates, when it was just a choice between now and August?" Again, the answer is likely to be "no". To be fair, there are arguments to wait (for quarterly CPI, new forecasts and so on). That is why we do not regard a cut in July as a shoo-in. Given how sensitive the RBA has been to arguments about lingering inflation pressures, it could be that the case to wait wins the day in the Board room.
However, the chief economist points out that the "arguments to wait are not compelling, though, so we do not think that case should win the day." She adds that "nothing the RBA will learn in the subsequent five weeks will change the decision to cut."
So what will happen?
Ellis is sitting on the fence when it comes to interest rates next week, but if she had it her way she would be cutting, stating:
A decision to cut in July is one of timing and tactics, not whether to cut at all. The RBA has shown itself willing to "surprise the market" when the question is whether to move or not. The May 2023 hike was a good example of this. But if the question is now or in five weeks' time, the juice is not worth the squeeze. Just get on with it.
Looking ahead, Westpac continues to forecast the cash rate falling to 3.35% by the end of the year and 2.855 by the middle of next year.
