Westpac flips cash rate forecast to February
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Westpac has flipped forward its prediction for an interest rate cut from the Reserve Bank of Australia to February after flopping backwards to May late last year.
It comes as the latest inflation print from the Australian Bureau of Statistics showed that the annual rate fell to 2.4% in the fourth quarter of 2024, marking the lowest reading since early 2021.
Goods inflation led the charge thanks to cheaper electricity and fuel prices amid the continued impact of Energy Bill Relief Fund rebates, while a slowdown in the cost of new dwellings also helped.
“The better-than-expected inflation data tips the balance back to the February move we had previously expected,” said Westpac analysts.
“Normally it should not come down to one number. This round, however, the CPI (consumer price index) has been the deciding factor because the message from other available data has been so mixed.
“With trimmed mean inflation at 0.5% in the quarter… we have just enough evidence to conclude that disinflation has proceeded faster than the RBA expected.”
This, according to Westpac, will give the RBA board the required confidence to start cutting the cash rate next month.
Westpac’s renewed optimism for an early rate cut brings it in line with fellow majors ANZ and CommBank.
Earlier this month, ANZ predicted a 25-basis-point cut in February, at RBA’s February meeting, while CommBank has made a similar prediction.
Reflecting on today’s inflation data, ANZ’s senior economist Catherine Birch (pictured) said “there are positive signs that housing disinflation will continue into 2025, reflecting the softening market”.
Birch noted that rent inflation eased to 0.3% month on month in December rather than maintaining the previous 0.6% trend, while new dwelling and construction costs also remained steady.
Outlook brightens
With the big four universally concurring that interest rates will start falling sooner rather than later, attention now turns to the homebuying market.
An easing of monetary policy is likely to lead to some renewed optimism in what has been a sluggish time for dealmaking.
Anton Stevenson, head of home loans at Compare Club, stated: "If a mortgage broker or bank has previously told you that you couldn’t qualify for a new home loan or refinance due to current interest rates, a rate decrease could change that.
“Lower interest rates typically reduce the bank’s servicing buffers, making it easier for you to meet loan eligibility requirements."
The RBA is scheduled to make its next interest rate.