Last week was an interesting one for homeowners. For several weeks, economists have been warning that the interest rate cuts were over.
But a surprise uptick in the unemployment rate has changed their tune very quickly.
So, with the next Reserve Bank of Australia (RBA) meeting coming early next month, what is the likelihood of the central bank cutting rates again?
Let's see what the economics team at Westpac Banking Corp (ASX: WBC) is saying about interest rates.
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Will the RBA cut interest rates again?
According to the latest Westpac Weekly economic report, the bank highlights that Australian employment is weaker than the RBA was forecasting, which supports its view that there is a chance that rates will be taken lower next month.
However, it points out that there is still one key piece of economic data to come before the decision is made, which could have a big impact on the central bank's next move.
Commenting on the latest economic data, the Westpac team said:
Compared to the RBA's August forecasts, employment is already on a weaker footing, and the unemployment rate now looks likely to overshoot their projections. This lends weight to our view that there is still a good chance the RBA will cut rates in November – a view supported by the swift reaction in market pricing, the chance of a 25bp November cut lifting from 40% to 78%. That said, the Q3 CPI (due October 29) will be the ultimate determinant of the November decision.
As things stand, Westpac is expecting one more interest rate cut before the end of 2025. This will take the cash rate down to 3.35%.
After which, it is forecasting another rate cut to 3.10% by March 2026 and then a further cut to 2.85% by June 2026. It then expects the cash rate to remain at the level for the remainder of its forecast period, which runs until December 2027.
Market forecasts
The market seems less certain than Westpac on what the RBA will do with interest rates next month.
According to the latest ASX 30 Day Interbank Cash Rate Futures, the market has priced in a 44% probability of a decrease to 3.35% in November.
It also isn't as dovish on the longer term outlook and is pricing in a 3.25% cash rate at the end of next year. This compares to Westpac's forecast of 2.85%.
Time will tell whether Westpac or the market makes the right call. But at least there is likely to be some relief on the way for borrowers.
