Yahoo Finance Westpac CEO reveals when the RBA could cut interest rates
Peter King said unemployment will have to go up before the Reserve Bank of Australia would consider a cash rate cut.
Westpac's boss has revealed when he believes the Reserve Bank of Australia (RBA) will start to look at cutting interest rates. The RBA will reveal today what interest rates will be following a two-day meeting and it is largely tipped to keep the cash rate on hold at the 12-year high of 4.35 per cent.
Some are predicting there could be a rate rise later this year if inflation isn't dealt with and many homeowners are wondering when rates will start to fall. The chief executive of Australia's second-largest bank said mortgage holders will only start getting relief when the unemployment rate goes up.
“We haven’t we haven’t seen any major change in unemployment," he told The Australian. "At the macro level, the economy is actually very resilient but at the tail, those people that are doing it tough are really doing a tough and they’re mainly young and lower income earners."
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King said unemployment, which is currently sitting at 3.9 per cent, would have to rise into the mid-4s before the RBA moves the cash rate down because it's closely tied to inflation.
He doesn't see a rate cut until at least 2025.
The most recent Consumer Price Index (CPI) figures showed annual headline inflation sat at 3.6 per cent, which was lower than the previous quarter's 4.1 per cent, but higher than the RBA's 3.5 per cent prediction for the first three months of 2024.
The RBA has an inflation target of 2.5 per cent by 2026.
Could interest rates go up in 2024?
Former RBA governor Philip Lowe warned this week that another interest rate rise this year was not completely out of the question if inflation didn't continue to fall.
"I understand that most people hope the peak has been reached and it may well have, but it might not have," he told the Australian Financial Review.
"People have been asking me [about rates] through the course of the year and I've been reminding them there is still two-way risk."
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Markets ascribed just a 10 per cent chance that the RBA would deliver a shock rate hike at today's meeting, however traders have bolstered their bets of a resumption in tightening by Christmas, assigning a 44 per cent chance of a hike by December.
Economists are noticeably less pessimistic about the path of interest rates, with consensus forecasts showing the RBA’s next move will be down from November at the earliest.
AMP chief economist Shane Oliver said while he expected the RBA to ultimately keep the cash rate on hold, it would likely warn that a further rise in rates “cannot be ruled out.”
“As a result, the RBA is likely to consider another rate hike,” Dr Oliver said.
“However, with retail sales and household spending data indicating the consumer remains under pressure and that rate hikes are continuing to work to cool demand … [the RBA is] likely to sit tight.”
When do the big four banks predict a rate cut in 2024-25?
Westpac, Commonwealth Bank (CBA), ANZ and NAB are all predicting the RBA will deliver a 0.25 per cent rate cut in November this year.
ANZ is the most conservative in its 2025 forecasting, as the bank predicts two more rate cuts next year, while Westpac, CBA and NAB believe there could be as many as four.
Plan for the worst
While it's hard to know exactly what the RBA will do over the coming months, Rate City's research director, Sally Tindall, said it's better to be prepared for a bit of financial pain.
“Instead of 'not ruling anything in or out', which was the RBA’s message back in March, there’s a chance Governor Bullock will put Australians back on notice by explicitly referring to rate hikes once again," she said.
“Looking at the data, unemployment is still incredibly low at 3.8 per cent, the property market’s Teflon coating remains intact, with the latest CoreLogic figures showing 15 months of growth, and money in the bank from households has hit a new record high.
“This all gives the RBA cover to fire off another hike, if the next couple of rounds of inflation data warrants it.
“Borrowers should not sit idly by, waiting for the RBA to make its next move, but instead ask their bank to review their current rate."
- with NCA Newswire
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