Major lenders agree on the outlook for rates this year
As the next monetary policy meeting draws near, attention is turning to the forecasts of the nation’s largest banks regarding the upcoming decision on interest rates.
All of the so-called “Big Four” banks agree that the Reserve Bank of Australia (RBA) will leave the cash rate unchanged at its September meeting, with a reduction likely in November.
Recent labour market data showed the unemployment rate holding at 4.2% in August, but the figures did not prompt expectations of an earlier rate cut. The Australian Bureau of Statistics reported a decrease of 5,400 jobs in August, following an increase of 26,500 in July. Full-time employment declined by 40,900, while part-time positions rose by 35,500. The employment figures were described as a “key” consideration ahead of the RBA’s upcoming decision.
Despite the weaker result, Ryan Well, economist at Westpac, said the data painted a weaker picture on the labour market than anticipated. “This is unlikely to shift the calculus materially for the RBA, which prefers to take a multi-month view on current trends given the volatility in the monthly data.”
Harry Ottley, economist at Commonwealth Bank, described the latest data as a “mixed bag” and noted that the unemployment rate was “broadly tracking as the RBA had expected.” He, however, noted that the unemployment rate is now very close to the forecast peak, leaving little room for a further drift higher.
Aaron Luuk, economist at ANZ, also believe that that the latest labour market figures were unlikely to influence the RBA’s decisions for either the September or November meetings. “The data would not sway the market one way or another on the November RBA meeting, where a rate cut is expected, or for that matter the coming September meeting, which should pass with no change in rates,” he said.
NAB economists echoed this sentiment, stating that the flow of data so far does not suggest any urgency to lower rates.
Inflation, as measured by the monthly Consumer Price Index indicator, increased by 2.8% in the year to July, up from 1.9% in June. This marks the highest annual rate since July 2024.
The RBA is due to announce its next interest rate decision on Sept. 30. Markets currently assign a 10% probability to a rate cut this month and an 86% chance of a 25-basis-point reduction by November.
The RBA’s previous rate reductions this year have led banks and analysts to update their forecasts for further easing. If lenders pass on the full effect of a 25 basis point cut, borrowers could see a noticeable decrease in repayments. Mozo’s analysis suggests that a typical borrower with a $660,000 mortgage could save approximately $100 per month, or $1,195 annually, if their rate falls from 6.10% to 5.85%. Homeowners in New South Wales, Queensland and Victoria are expected to benefit most in dollar terms.
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