Commonwealth Bank (CBA) believes the cash rate has now peaked at 4.1 per cent and is expecting the Reserve Bank of Australia (RBA) will cut interest rates early next year.
The major bank is anticipating the RBA will cut rates for the first time in its meeting on March 19, 2024.
“While the RBA is likely to hold the cash rate at 4.1 per cent for an extended period, we expect it will start lowering interest rates in March next year, to 3.1 per cent by the end of 2024 - in response to a slowing economy, inflation closer to target and a softer labour market,” CBA chief economist Stephen Halmarick said.
A 1 per cent interest rate cut, would save a borrower with 7 per cent interest rate and a $600,000 home loan taken out over 30 years about $395 a month on their repayments.
CBA’s latest Household Spending Insights Index - based on payments data from approximately 7 million customers - found Aussies were continuing to tighten their belts following the RBA’s 12 interest rate hikes.
Spending growth declined nationally to just 1.3 per cent in the year to July, down from a peak of 18.2 per cent in August 2022.
“Monetary policy is now restrictive and financial conditions will continue to tighten in the months ahead on the lagged effect of RBA interest rate increases and the fixed-rate mortgage-refinancing task,” Halmarick said.
“We continue to expect household spending to weaken further over the remainder of 2023 and 2024.”
RBA to cut number of meetings
From 2024, the RBA board will only meet eight times a year - instead of 11 - to set interest rates.
Four of the meetings will occur on the first Tuesday of February, May, August and November, while the remainder will be held midway between those dates. Those dates will be March 19, June 18, September 24 and December 10.
The meetings will typically start on the Monday afternoon and then continue to the Tuesday morning, with any rate announcement to take place on the Tuesday afternoon.
The RBA governor will also hold a press conference after every board meeting to explain the interest rate decision.
They are among a large number of changes that have been made in response to the RBA review, which was released in April.
New wave of mortgage stress coming
It comes as more than a million Aussies face a ‘mortgage cliff’ as they roll off low-rate, fixed-rate home loans.
Roughly 880,000 fixed-rate mortgages are expected to come to an end this year, with another 450,000 set to expire in 2024.
New Finder analysis found borrowers who took out a two-year, fixed-rate loan in 2021 at a near-rock-bottom 2.21 per cent could see their repayments skyrocket by $1,677 per month, based on today’s average home-loan rate of 7.06 per cent and the average $580,247 home loan.
According to Finder, a staggering 40 per cent of Aussie mortgage holders said they were struggling to pay their home loan in August.