Next week the Reserve Bank of Australia (RBA) will be meeting for the first time in 2024 to decide on interest rates.
This meeting comes at a very interesting time given how last week the Australian Bureau of Statistics revealed that inflation continued to ease during the December quarter.
In light of this, the market is now expecting the RBA's next move for rates will be lower and not higher. This is very welcome news for borrowers.
But what could happen at next week's meeting? Let's take a look at what the economics team at Westpac Banking Corp (ASX: WBC) is expecting from the central bank.
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Westpac on the RBA and interest rates
According to the bank's latest weekly economic report, its team expect the RBA to keep its powder dry on Tuesday. Chief Economist, Luci Ellis, said:
The data flow since November has pointed in this direction, and today's CPI release seals the deal: the RBA will keep the cash rate on hold next week, and it is unlikely to raise rates further this cycle.
And while Ellis has suggested that the central bank's rhetoric at Tuesday's meeting may not change as much as borrowers would like, she believes that it may not be long until the RBA will be confident enough to state that inflation is under control. She said:
[The RBA] is unlikely to rule out further rate increases entirely in their post-meeting communication. But the case to raise rate from here is steadily losing traction. We expect that over coming months, further declines in inflation and soft outcomes in the real economy will give the Board enough confidence that inflation will return to target on the desired timetable. They will therefore have scope to reduce some of the current restrictiveness of policy.
When will rates fall?
Westpac isn't expecting interest rates to fall in the very near future, but does believe that the first cut will come in 2024.
Ellis advised that the Westpac economic team "expect the first rate cut no earlier than September." This would take the cash rate to 4.1%.
The good news is that Westpac then expects further cuts to 3.85% by December, 3.6% by March 2025, 3.35% by June 2025, and then finally 3.1% by September 2025.
