Economic indicators point to potential rate cut
With sub-trend economic growth, rising unemployment rate, declining inflation, and the likelihood of falling global cash rates, the Bank of Queensland (BOQ) predicts that the next move in the cash rate by the Reserve Bank of Australia (RBA) will likely be downwards.
Peter Munckton (pictured), chief economist at the Bank of Queensland, said his three cash rate models indicate that the decline in the cash rate could commence either in the latter half of this year or early next year.
Munckton pointed out that factors such as high-capacity usage in the economy, alongside a relatively higher inflation rate and lower cash rate compared to peer economies, suggest that any reduction in the domestic cash rate may occur later than in other countries.
“With the decline of interest rates in those peer economies projected to begin in Q2, I think that will mean the first rate cut in Australia will be sometime between Q3 2024 and Q1 2025,” Munckton said.
The economist’s cash rate models estimate that the total reduction in the cash rate during this cycle could range between 0.75% to 1%.
The forecast for interest rates came a day after the RBA kept the official cash rate at 4.35% after 13 increases since May 2022.
Munckton’s initial projections point towards the possibility of the first monetary easing occurring in November. The probability of the timing of the first rate cut stands at 5% in May, 20% in August, 45% in November, and 30% in February 2025.
His forecasted cash rate low in this cycle is 2.85%, though there remains a clear risk that the cash rate could be higher than anticipated, potentially reaching 3.35 to 3.6% in this cycle.
Nevertheless, Munckton reiterated that these forecasts are contingent upon economic conditions aligning with expectations, similar to the trends observed in 2023.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
