The outlook for home loan borrowers could be taking a positive turn as financial markets now expect interest rates to drop more quickly than initially anticipated. Previously, markets had only priced in a small interest rate cut, but the new expectation is for three cuts starting from the middle of next year. This shift in sentiment is a result of a global easing of inflation, as reflected by trends in wholesale interest rates between May and October.
Though the markets are becoming more confident in this prediction, experts caution that the Reserve Bank has not yet tamed inflation and will proceed with caution. The Reserve Bank’s upcoming update on the official cash rate will provide further insights into their future stance. In the local market, ANZ has already adjusted its forecast, expecting the official cash rate to remain on hold at 5.5% until the Reserve Bank is comfortable to cut. Westpac, on the other hand, continues to anticipate another rate hike, but their forecast may change in the coming week.
While the recent change in market expectations is not causing immediate problems for the Reserve Bank, retail home loan rates continue to rise, allowing the bank to maintain some tightening. However, if the Reserve Bank’s forecasts in the upcoming monetary policy statement indicate lower interest rates or earlier cuts than previously signaled, it may result in further downward pressure on wholesale rates. This could eventually lead to a slight easing in retail rates, providing some relief for mortgage holders.
Frequently Asked Questions:
Q: When can mortgage holders expect interest rate relief?
A: Financial markets are now pricing in three interest rate cuts starting from the middle of next year, which could potentially provide relief for mortgage holders.
Q: Is the Reserve Bank confident in easing rates?
A: While the market has shifted towards easing rates, the Reserve Bank remains cautious and will continue to monitor inflation before making any decisions.
Q: What will the Reserve Bank’s upcoming statement include?
A: The upcoming monetary policy statement will provide an indication of the official cash rate’s future trajectory and the Reserve Bank’s outlook on inflation and the economy overall.
Q: When will retail rates start to ease?
A: If wholesale rates continue to be pushed down, there may be a gradual easing of retail rates, providing some relief for mortgage holders. However, this will depend on various factors, including the Reserve Bank’s actions and market conditions.
Q: Are term deposit rates also expected to decrease?
A: At the moment, term deposit rates have remained high and stable, showing no significant movement.