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When will interest rates go down?

After 13 cash rate rises inflation is finally slowing. With the rising cost of living the reason rates were rising, does this mean we can expect rates to fall soon?

After the Reserve Bank of Australia’s (RBA) attack on the rising cost of living over 2022 and 2023, borrowers are ready for rates to ease.

While there’s a lot that can change in both the global and domestic economies to impact when the RBA will start cutting rates, we can take a look at what the data is telling us currently and what economists are saying.

When will interest rates fall?

Finder runs a survey of its panel of economists every month, asking questions from what they think the RBA will do next to their thoughts on government reform. Lately, we've been asking when they think the RBA will first cut the cash rate.

10 out of 27 panellists predict the first rate cut won't happen until at least 2025. However, another 10 believe it will happen from August onwards. The remaining 7 panellists believe it could happen as early as the first half of this year.

What do the economists think?

The background

In May 2022 the RBA began increasing the cash rate in a bid to beat rising inflation. Inflation, in simple terms, measures the change in household spending. The higher the rate of inflation, the higher the change in the cost of living.

The RBA has a target that inflation should only be between 2% and 3%. In December 2022 it reached a peak of 7.1% – much higher than anyone would like the cost of living to grow by.

In order to bring that rate down and back to the target range, the RBA began lifting the cash rate. Banks, in turn, lifted their own interest rates. This meant that people would spend more on their home loans and spend less on other goods, bringing household spending down as well as prices.

It seems to be working. Inflation has been coming down and the most recent figures show an inflation rate of 4.1% over the 12 months to the December 2023 quarter.

And now that we're so close to the target range, it's no wonder people are questioning when their rates will go down.

History of interest rates: Are interest rates higher than usual?

Interest rates are higher than they have been since the late 2000s but our latest period of rising rates has not taken us anywhere near the record highs of 1989 and 1990.

Could interest rates go higher?

The short answer: yes. Although inflation is currently tracking the way the RBA intends it to and economists are saying we've reached the interest rate peak, there are many factors at play. Inflation was always going to be "sticky" and that means while one month looks positive, the next month may trend upwards again.

After February's cash rate decision, an RBA statement said the board would not hesitate to increase the cash rate again if it was necessary to bring inflation down:

"While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out."

Current average and lowest home loan rates

Australian interest rates February 2024Data
Average variable mortgage interest rate7.24%
Lowest variable rate available on Finder*5.97%
Average fixed mortgage interest rate6.71%
Lowest fixed rate available on Finder*5.80%

*Lowest rates listed above are based on products from lenders with whom Finder has a commercial partnership.

How far could interest rates fall?

It's hard to say how far interest rates may fall. Up until May 2022 interest rates were at record lows, with the cash rate sitting at 0.10%. It's not possible to say whether or not they will fall that low again in the foreseeable future.

The RBA will likely remain cautious after its initial rate cut as it monitors the impact it has on inflation and other areas of the economy like employment. However, Westpac's economist Luci Ellis has speculated the RBA "might cut rates a couple of times".

The RBA's cash rate movements so far

How can homebuyers save on mortgage costs?

Whether you want to save money on your home loan repayments or save money on your home loan overall, there are a few ways to do that:

Number 1

Compare your interest rate.

Particularly after the interest rate rises we've seen over 2022 and 2023, it's important to check the rate you are paying on your home loan compared to rates available on the market. Banks and lenders often offer new customers more competitive rates and if you haven't checked your loan in a couple of years you're almost definitely paying a higher rate than you should be.

Number 2

Check your fees.

Look at your repayments and work out how much of what you're paying is going towards your loan and what is going towards fees. Sometimes the interest rate is lower but the ongoing fees are cancelling out any saving. You might find you're better off switching to a loan with a slightly higher interest rate but with no fees to pay. Just make sure you're not missing out on any of the features.

Number 3

Use your offset account.

By putting money into your offset account you could save thousands on your overall home loan repayments. An offset account reduces the amount of interest you pay on your loan. So although your monthly repayments stay the same, you'll pay off your loan faster and end up paying less in interest.

Is 2024 a good year to refinance?

It's always a good year to compare your home loan interest rate and see if refinancing is right for you at that moment in time. After 2 years of rising interest rates, 2024 is particularly good. For anyone who has remained on a variable rate over the last 2 years, or who has moved from a fixed rate to a variable rate, it's definitely worth checking your interest rate against the market.

Is 2024 a good year to fix your home loan?

It's probably not a good time to fix a home loan this year. Interest rates have been rising throughout 2022 and 2023, but as we're expected to have reached the peak of rising rates, there's not much point in fixing a rate.

Banks and lenders have been reducing their fixed interest rates in an attempt to entice borrowers, which is an indication of how they expect rates to fall this year. Fixing your home loan this year could mean you end up paying a higher interest rate if rates do fall later this year or early next year.

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