Much to the disappointment of homeowners, on Tuesday, the Reserve Bank of Australia (RBA) decided to keep interest rates on hold at 4.35%.
RBA Governor Michele Bullock highlighted that inflation remains high and appears to believe that cutting interest rates now could stop it from hitting target. She said:
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 remains uncertain and the Board is not ruling anything in or out.
So, when might interest rates fall? Let's take a look at what the economics team at AMP Ltd (ASX: AMP) is saying.
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When will interest rates fall?
As I mentioned here at the weekend, Westpac Banking Corp (ASX: WBC) is currently expecting the first rate cut to take place in September.
The good news for borrowers is that AMP sees scope for a cut to happen sooner than that.
In his weekly report, AMP's chief economist, Dr Shane Oliver, said:
Given the generally slowing but somewhat mixed readings the RBA is likely to sit on its hands still waiting for more confidence "that inflation is moving sustainably towards the target range". We continue to see the RBA gaining that confidence by June and being able implement the first cut then but concede there is a high risk it could be delayed till August.
Significant fiscal stimulus in the May Budget could risk delaying the start of easing but the RBA will probably want to see whether this eventuates or not before starting to cut – which likely rules out a May cut.
So, all being well, homeowners may get some relief from their mortgage repayments later this year if everything goes to plan.
