Westpac is predicting the Reserve Bank of Australia to deliver four interest rate cuts over the next year, with relief starting as early as August.
The central bank is expected to hold rates when it meets again next month, but Westpac forecasts a 0.25 per cent relief in August and then again in November.
A lower inflation outlook is today giving the big four bank the confidence to call another two cuts of 0.25 per cent early next year.
Westpac Group Chief Economist Luci Ellis estimated those later cuts to be in February and May, but said it could be as early as December if the 2.4 per cent inflation and the labour market show weaker results than expected.
It would bring the current 3.85 per cent cash rate down to 2.85 per cent, which Ellis said was the “lower end of the neutral range”, for the first time since November 2022.
“It is possible that some of these cuts come a bit faster than the ‘cautious’ path we currently have pencilled in,” Ellis said.
“This will depend on the evolving data flow, particularly for the labour market and inflation, as well as the RBA’s evolving beliefs about what constitutes full employment.”
Ellis, however, warned that the Reserve Bank is not known to rush rate cuts and instead has a preference to move cautiously and predictably.
“This is code for not wanting to do back-to-back cuts,” he said.
Westpac has the most optimistic cash rate forecast of the big four banks.
NAB is forecasting three cuts, while the Commonwealth Bank and ANZ predict a more moderate two.
Three out of four of the banks are predicting the next cut to come in August, with NAB deviating with a July prediction.
If Westpac’s forecast of four rate cuts is correct, Canstar estimates homeowners with a $600,000 loan to see a $349 drop in monthly repayments.
“This would be a huge relief for households under pressure, however, borrowers should remember this is a forecast, rather than a given,” Canstar Data Insights director Sally Tindall said.
“While the timing of the next cut is still up in the air, the prospect of at least one more is, at this stage, likely.”
