Cash rate likely to remain on hold until 2025, as borrowers urged to rethink budgets

The Reserve Bank of Australia (RBA) is expected to keep the cash rate on hold at 4.35% at its meeting tomorrow, with borrowers advised to plan for rates to remain at this level for the remainder of the year, according to RateCity.com.au.

While the RBA Board is likely to consider the case for a rate hike, as it did in its last meeting in May, recent wobbles in the monthly CPI indicator are not expected to push the RBA into hiking rates further. However, the Board is also unlikely to be considering cash rate cuts in the near future.

This was made clear last week when ANZ changed its cash rate forecast, moving the timing of the first cut from November this year to February 2025.

The differing economic views among the big four banks as to when the cash rate might start dropping highlights the uncertainty facing the RBA and the country. The timing and number of rate cuts will have a significant impact on household finances across the country.

RateCity.com.au research director, Sally Tindall, said borrowers should rethink their budgets immediately and plan for one more hike, just to be on the safe side.

“If you’ve got a mortgage, don’t even daydream about a rate cut, but instead keep your head down and your home loan repayments up,” she said.

“As 2024 unfolds, the RBA is looking less and less likely to pull the trigger on any cash rate cuts before the end of the year.”

Ms Tindall advised borrowers to negotiate their current interest rate, either by haggling with their current lender or refinancing to a lower rate lender, and to consider chipping extra cash, such as the stage three tax cuts, into their mortgage.

RateCity.com.au research shows that if a family earning $150,000 a year, with $500,000 owing on their mortgage, put their stage three tax cuts into their home loan, they would have an additional buffer of $3,194 in the first year. If they continued making these extra repayments for the remainder of their loan, they could potentially save $65,517 in interest and pay off their loan three years and eight months early.

“The stage three tax cuts will help some families get their budgets out of the red, but for those that are already managing to balance the books, spend some time thinking about how you might be able to make the most of this extra cash,” Ms Tindall said.