Mortgage holders struggling with the highest interest rates in 12 years could save hundreds of dollars a month if an Australian stock market forecast comes true.
The Australian Security Exchange’s RBA Target Rate Tracker on Tuesday forecast four rate cuts through mid- to late 2025.
The tracker, which is released at the end of each trading day, calculates the probability of the Reserve Bank changing the official cash rate.
This rate is derived from market prices in the ASX 30-Day Interbank Cash Rate Futures.
The tracker predicts a 25 basis point rate cut in February, followed by three further cuts in August.
If this continues, the official cash rate will fall from 4.35 percent to 3.35 percent.
The Reserve Bank has raised interest rates 13 times since May 2022, to a 12-year high of 4.35 percent.
Variable mortgage terms are 70 percent higher than at the beginning of 2022, as interest rates have risen from a ‘two’ to a ‘six’.
Earlier this month, Reserve Bank Governor Michele Bullock ruled out a short-term rate cut before Christmas
Graham Cooke, head of consumer research at Finder, said Australians with an average mortgage of $641,143 could save $5,076 a year if these rate cuts become reality.
“Four rate cuts would provide significant relief to homeowners struggling with rising mortgage payments,” he said.
It is important to remember that these predictions are based on probability and the future is still uncertain.
‘Homeowners with a fixed-rate mortgage may not immediately notice the benefits of the interest rate cuts.
“But people whose fixed terms are expiring soon may benefit from better refinancing options when their loans return to variable rates, avoiding the sharp increases many have seen in recent years.”
However, he warned that market sentiment towards the ASX is no guarantee the RBA will cut rates.
Many Australians are struggling with the highest interest rates in 12 years
‘The ASX makes it clear on its website that the information is indicative only, meaning that while the market is pricing in the possibility of four rate cuts, this is no guarantee that the Reserve Bank will take action,’ he said.
‘The ASX Target Rate Tracker reflects market sentiment based on short-term interest rate futures, but economic conditions can change quickly.
‘Homeowners and investors should remain cautious.’
Reserve Bank Governor Michele Bullock last month ruled out cutting interest rates before Christmas, but acknowledged it would leave more people in financial trouble.
“Although this group is quite small overall, the people in it have had to make quite painful adjustments to avoid falling behind on their mortgage payments,” she told the Australian Business Economists lunch in Sydney.
‘These include things like limiting spending to the bare essentials, switching to lower quality goods and services, tapping into their savings or working extra hours.
“Some ultimately make the difficult decision to sell their home.”
However, the futures market had until recently still priced in rate cuts in November and December, despite Ms Bullock’s strong proposal for no rate cuts in 2024.
“Of course, circumstances can change and if economic conditions do not evolve as expected, the board will respond,” she said.
‘But if the economy develops overall as expected, the government does not expect to be able to cut rates in the short term.
‘We have to see the consequences in the form of inflation before we can do that.
“If we don’t get inflation down, that’s bad for everybody, absolutely everybody. So that’s the task I’m focused on. That’s the task the board is focused on. I really think the board thinks at this point that we’re still on that narrow path.”