Monday, December 2, 2024

Predicted Interest Rates in Australia

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Key takeaways

Predictions for interest rates in 2025 vary: 2 of the big banks forecast gradual rate cuts starting in February, ending 2025 at ~3.35–3.6%. The other 2 big banks now say rate cuts will strat in May.

Inflation control, economic growth, and employment will dictate rate movements, with stability or gradual cuts likely.

Long-term interest rates are expected to remain higher than pre-pandemic levels, averaging around 2.5–3% by 2029.

Property investors may benefit from less competition now, with rate cuts potentially reigniting market growth later.


Property investors and homeowners around Australia are eagerly waiting for the day when the Reserve Bank of Australia (RBA) decides to lower interest rates again, in the hope that lower rates will go some way to ease the burden of higher mortgage repayments and strained affordability.

With the official interest rate paused throughout 2024, holding steady at 4.35%, many are asking the questions:

  • What will happen next?
  • Are interest rates expected to go up again?
  • Are we over the worst?
  • What are the interest rate forecasts in Australia?

To give you some insight to what ahead I’d like to 1st start by discussing what’s happening in the past 5 years, what interest rates might look like in 2025, the big banks’ interest rate predictions for 2025 and the long-term interest rate forecast for Australia.

Most importantly, I will discuss what the future might hold for property investors, homeowners, and the broader Australian economy.

Past 5-year interest rate movements in Australia

The chart above illustrates Australia’s cash rate trajectory over the past 15 years, highlighting significant changes influenced by events like the COVID-19 pandemic which led to “war time” interest rate lows and subsequent inflation which led to the RBA raising rates.

15-year Australia interest rates chart15-year Australia interest rates chart

Here’s a summary of the key changes in the 5 years from 2019 to 2024:

  • 2019: The RBA began cutting interest rates in 2019 in response to economic stagnation and global uncertainties. In June, the cash rate was cut by 0.25%, again by 0.25% in July, a third 0.25% cut (to 0.75%) was made in October that same year. The RBA’s decision to cut rates was intended to support employment growth and to increase confidence that inflation would rise to be in the target range.
  • 2020: The COVID-19 pandemic led the RBA to continue cutting the cash rate in an effort to stimulate the economy. It reached a record low of 0.10% in November 2020.
  • 2021: As Australia battled through COVID-19 lockdowns, the RBA maintained the cash rate at 0.1%, aiming to support the economy. With a mix of government stimulus and cheap money, the housing market boomed, leading to skyrocketing property prices.
  • 2022: A sharp increase in inflation led the RBA to begin raising the cash rate again, marking the beginning of one of the sharpest rate-hiking cycles in its history. The first hike came in May 2022, when the RBA raised the cash rate to 0.35%, it then hiked another 7 times to reach 3.10% in December as it tried to cool inflation and curb household spending.
  • 2023: The RBA increased the cash rate five times in February, March, May, June and November of 2023 when it reached 4.35%, still in an effort to curb inflation. The RBA did not change the cash rate in January, April, July, August, September, or October.
  • 2024: The Reserve Bank did not raise the cash rate in 2024, but wavering inflation levels continued to hold off any potential rate cuts. As of November 2024, Australia’s interest rate remains unchanged at 4.35%.

This snapshot shows how the RBA’s policies and interest rate decisions closely follow the country’s economic health.

Interest rates fell dramatically during the global financial crisis, but today Australia’s interest rate sits at 4.35%, which is the highest it’s been since November 2011.

What will happen to interest rates in 2025?

The jump from a 0.10% interest rate in 2020 to today’s 4.35% is striking.

It has left many mortgage holders grappling with significantly higher monthly repayments, amplifying financial strain.

Since the last rate hike in November 2023, the Reserve Bank of Australia (RBA) has held the cash rate steady, but discussions about potential adjustments in 2025 are heating up.

Critics argue these changes are overdue.

The RBA has been accused of being too slow to act compared to other advanced economies, where rates have surpassed 5% to curb inflation.

In contrast, Australia’s peak rate remains lower at 4.35%.

This disparity has positioned Australia as a late mover in reducing rates, likely because inflation surged later here than in other countries, prompting more gradual hikes. Looking ahead, economists are divided: some predict a cut in early 2025, while others foresee a prolonged pause.

Either way, shifts in interest rates will significantly impact the financial landscape for borrowers and the broader economy.

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Note: Overall, interest rate forecasts in Australia for 2025 involve many moving parts – inflation control, Australia’s economic growth, housing market trends, employment and wage growth and even global economic conditions.

So, there are three key scenarios for how we might see interest rates in the next 12 months.

Scenario 1: There could be a gradual rate cut if inflation trends downward and the economy slows, easing pressure on households and supporting growth.

Scenario 2: There could be cash rate stability if inflation and employment data stay within target ranges, with the RBA pausing any significant changes to allow the economy to adjust.

Scenario 3: There could even be rate hikes if inflation remains unexpectedly high, though this seems less likely than the other 2 scenarios.

However, most analysts expect that by mid-2025, rates may be stable or slightly lower than today, depending on inflation and growth trends; either way, the RBA is likely to tread cautiously.

Biggest banks interest rates predictions for 2025

According to the RBA’s latest forecast, inflation won’t hit the middle of its 2% to 3% target range until 2026.

Many economists argue that this pace is too slow and risks inflation becoming entrenched.

They believe it’s better to address inflation decisively now rather than let it become a persistent issue.

Persistently high inflation harms consumers by continually increasing the cost of living and will force interest rates to stay higher for longer, potentially leading to an economic recession.



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