RBA Holds Cash Rate at 4.35% for Over a Year – Change on the Horizon?
For 13 consecutive months, the Reserve Bank of Australia (RBA) has maintained the cash rate at 4.35%. However, experts now believe that change could be on the way, potentially offering much-needed relief for borrowers who have battled rising costs since the pandemic.
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Analysts Predict Rate Cuts Beginning in Early 2025
The Commonwealth Bank’s Head of Australian Economics, Gareth Aird, has forecasted that the first rate cut could arrive shortly after the RBA’s February meeting. Aird expects a 25-basis-point reduction, signaling the start of a more accommodative monetary policy cycle.
“Our base case is for the RBA to commence normalizing the cash rate in February 2025 with a 25-basis-point interest rate cut. We look for 100bp of easing over 2025 that would take the cash rate to 3.35%,” Aird stated.
He also pointed to recent remarks by RBA Governor Michele Bullock as indicators of a potential shift in monetary policy. “We are encouraged by today’s statement for our call for a February rate cut. But we are not across the line yet,” he added.
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NAB CEO: Rate Cuts Could Begin by Mid-2025
Andrew Irvine, CEO of NAB Group, shared a similar view, anticipating that rate cuts will commence by mid-2025. He believes that economic conditions are currently at their most challenging point but expects improvements ahead.
“We’re at the hardest point of the economic cycle right now,” Irvine said. “When we get that first rate cut, I think it’s going to have a significant impact on the psyche of consumers and business owners—far greater than the actual impact on cash flow.” He also predicted that two additional rate cuts would follow within the next 12 months.
Major Banks Forecast Multiple Rate Cuts in 2025
Other leading financial institutions, including ANZ, Westpac, and NAB, have projected rate reductions later in the year, with some anticipating as many as five cuts in 2025. Initially, analysts expected the first 25-basis-point cut in May, but revised forecasts reflect uncertainty based on economic performance over the next few months.
Westpac Chief Economist Luci Ellis emphasized the resilience of the Australian labor market as a key stabilizing factor.
“The big thing for us is employment and the strong employment market conditions throughout Australia. As long as people have jobs and there is income coming into households, most bills and mortgage payments are met, and the worst doesn’t happen. At the back end of this year, you’ll start to see good growth,” Ellis explained.
Cost of Living Pressures vs. Encouraging Signs for Households
Despite positive employment trends, Australian households continue to feel the pressure of rising living costs. However, Commonwealth Bank’s Angus Irvine noted a promising development—tax cuts have allowed some Australians to save more.
“Deposit balances are increasing in the sector, which I think is promising,” Irvine observed.
What’s Next for Borrowers and the Housing Market?
If the RBA moves forward with expected rate cuts, borrowers could see significant relief in 2025. However, with inflation still a concern, the pace and scale of monetary easing remain uncertain. Analysts agree that much depends on the economic data released over the next few months.
For now, all eyes are on the RBA’s upcoming meetings, as homeowners, investors, and businesses eagerly await signs of a turning point in Australia’s economic landscape.
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