The RBA is widely expected to hold the cash rate at its June meeting, but the banks can’t agree on whether it’s next move will be up or down. ยท Source: Yahoo Finance/Newswire
Australia’s major banks are divided on which direction interest rates will go next. Three of the Big Four banks think interest rate rises are now over and the next move will be down, but one is predicting mortgage holders could be in for a further two interest rate hikes this year.
The one thing all of the bank economists are in agreement about is that borrowers will get some reprieve at the Reserve Bank of Australia’s (RBA) June meeting this week. The central bank has already hiked rates three times this year, taking the cash rate to 4.35 per cent.
ANZ joined Commonwealth Bank and NAB on Friday in predicting the RBA has reached the peak of its rate hiking cycle and will remain on hold for the rest of the year. ANZ is expecting two rate cuts in the second half of 2027.
RELATED
“Looking further ahead, with the broader signs of an economic slowdown and interest rates restrictive, rate cuts are likely to be the next sequence of rate moves,” ANZ chief economist Adam Boyton said.
NAB changed its rate forecast on Tuesday and now no longer expects the RBA to hike in August, but sees three rate cuts in 2027 starting in the second quarter.
“The next move in the cash rate is likely to be down, but the timing is uncertain,” NAB chief economist Sally Auld said.
Do you have a story to share? Contact tamika.seeto@yahooinc.com
Commonwealth Bank has been expecting the RBA to remain on hold from here since March.
“We maintain this view and continue to flag our call of two rate cuts in 2027 based on our outlook for growth, inflation and unemployment,” CBA Head of Australian economics Belinda Allen said.
HSBC also thinks rate hikes are over and predicts the RBA will take an extended pause before cutting rates in the third quarter of 2027.
“Although inflation is still too high, growth has already slowed and timely indicators suggest a sharper weakening to come,” HSBC chief economist Paul Bloxham said.
Westpac outlier in predicting two more rate hikes
Westpac has split off against the pack and is still expecting two further interest rate hikes in August and September due to inflation risks.
Westpac chief economist Luci Ellis affirmed the bank’s view that the RBA will hold in June but said there were “increases still ahead”.
“The risks are clearly on the downside, though, in the sense that zero or one further hike is much more likely than three hikes. A more extended pause would be associated with a smaller overall hiking cycle,” Ellis said.
Inflation is still running above the RBA’s 2 to 3 per cent target. Headline inflation eased to 4.2 per cent in April, down from 4.6 per cent, while trimmed mean inflation ticked up to 3.4 per cent, from 3.3 per cent.
Westpac expects headline inflation will peak at 4.7 per cent in the fourth quarter and trimmed mean inflation will peak at 3.8 per cent in the third quarter.
It then expects “significant pass-through from higher fuel costs into some other prices”, which would give the RBA an upside surprise.
AMP is also expecting the RBA to retain a “mild” tightening bias, given concerns about inflation remaining above target for too long.
“Underlying inflation is still trending up with business surveys and the stronger than expected award wage rise this year warn of ongoing cost and price pressures, posing a high risk that inflation expectations will move higher,” AMP chief economist Shane Oliver said.
“As such we are continuing to allow for a further rise in interest rates with the next hike likely to come in August.”
June hold widely expected
Nearly all experts and economists surveyed by Finder expect the RBA will hold the cash rate on Tuesday.
But 55 per cent expect at least one more hike before the end of the year, with 62 per cent seeing it coming as soon as August.
The Australian economy rose just 0.3 per cent in the March quarter, down from 0.9 per cent recorded in the previous quarter. Annually, the latest GDP figures show the economy grew at just 2.5 per cent.
Meanwhile, the national unemployment rate was 4.5 per cent in April, up from 4.3 per cent in March.
The RBA has hiked interest rates at its three meetings this year, adding an extra $272 a month to the repayments of an average $600,000 mortgage with 25 years remaining.
Get the latest Yahoo Finance news – follow us on Facebook, LinkedIn and Instagram.