As the new year unfolds, the financial focus in Australia is firmly on the Reserve Bank of Australia (RBA), particularly as it gears up for its first meeting of 2025. The decisions made here could have a significant impact on your wallets, especially if you have mortgages.
The Commonwealth Bank (CBA), one of the nation’s Big Four banks, has doubled down on its prediction that mortgage holders may soon breathe a sigh of relief.
Stephen Halmarick, CBA’s chief economist and head of global market research, expressed confidence that the RBA has ample justification to reduce interest rates by 0.25 per cent from the current 13-year high of 4.35 per cent.
‘Given the weakness in spending in December, combined with the improving inflation environment, we continue to hold the view that the RBA can begin to lower interest rates at their first meeting of the year,’ he explained.
The CBA reportedly highlighted a 1.8 per cent drop in its monthly household spending index for December, a decline that was particularly pronounced in the household goods sector, which saw an 8.3 per cent fall post-Black Friday sales.
The hospitality sector was reportedly not spared either, with a 2.6 per cent decline in food, beverages, and recreation spending.
However, spending on utilities in December rose by nearly 5 per cent, driven largely by strata management fees. Australians also increased their expenditure on communications, digital services, transport, and insurance.
Notably, air-conditioning and heating services, as well as childcare services, saw the highest year-on-year spending increases in the utilities category.
This assortment of consumer spending trends is seen by the CBA as a clear indicator that the RBA is well-positioned to cut interest rates.
Looking ahead, the CBA forecasts a total of 100 basis points of monetary policy easing throughout 2025, which would bring the cash rate down to 3.35 per cent. This prediction includes four separate 0.25 per cent rate cuts, a view recently echoed by ANZ, which shifted its forecast from May to February after the latest Consumer Price Index numbers indicated trimmed mean inflation was tracking below the central bank’s forecasts.
The other members of the Big Four, NAB and Westpac, were more conservative in their predictions, with May being the earliest they foresee a rate cut. However, NAB has softened its stance slightly, acknowledging that inflation is edging closer to the RBA’s target range of 2 to 3 per cent, which leaves room for a potential February rate cut. The implications of these potential rate cuts are significant for mortgage holders. A 0.25 per cent cut in February could reduce monthly repayments by $92 for someone with a $600,000 loan over 25 years.
If the RBA implements the four cuts predicted by CBA and Westpac, the same borrower could save $358 per month.
Such mortgage relief would benefit millions of homeowners. According to the results of a Yahoo Finance poll of over 5,000 people, 23 per cent would be forced to sell their homes if there was not a cut next month.
Aside from inflation and other factors, the struggling Australian dollar, currently at 62.30 cents to the US dollar, and the employment rate could also influence the RBA’s decision-making process.
Economists like Warren Hogan of EQ have pointed out the direct relationship between the Australian dollar and inflation, suggesting that a weak dollar could be a reason for the RBA to hold off on cutting rates.
‘I think that’s the thing that’s going to worry [the RBA]. It’s just another reason not to cut interest rates in February, and I do not think they will,’ he explained.
Whether you’re a homeowner, investor, or simply keeping an eye on the economy, the upcoming interest rate decision is one to watch closely. If you’re grappling with mortgage stress or have insights to share, we invite you to join the conversation in the comments below.
Stay informed and engaged with YourLifeChoices for the latest updates on these critical financial developments.
Also read: New hidden fees alert: Are you about to be charged more by Commonwealth Bank?
