Here's when Westpac says the RBA will finally cut interest rates

Will borrowers need to wait until May for a rate cut? Let's find out.

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What a difference a week or two makes when it comes to the economy and interest rates.

It seems like only a few sleeps ago the market was convinced that the Reserve Bank of Australia (RBA) would be cutting rates as early as next month.

But after the release of economic data this month, the market has taken a huge U-turn and is ruling out a move by the central bank at its next meeting.

At the time of writing, cash rate futures are pricing in only a 10% chance of a cut to 4.1% by the RBA on 5 November.

But not only that, cash rate futures are pointing to the RBA holding firm with rates until almost the middle of next year.

May is the month that the market is expecting Governor Michele Bullock to finally take action, which would be a big blow to borrowers.

But let's see what the team at Westpac Banking Corp (ASX: WBC) thinks about this.

When will the RBA cut interest rates?

According to the Westpac Weekly economic report, the bank's team believe the RBA could still cut rates before May.

Commenting on recent changes in expectations, the bank highlights that a lot will depend on next week's inflation reading. It said:

Markets have accordingly pared back bets for RBA policy rate cuts this year, although current pricing
suggests there is still a little appetite. […] All eyes will be on Q3 CPI on October 30, which should provide a more definitive guide on the near-term path for monetary policy.

As things stand, Westpac believes the cash rate will be down to 4.1% by March, then 3.85% by June, 3.60% by September, and then finally 3.35% by December. The bank then expects interest rates to remain at this level as far out as December 2026, which is where its forecasts end.

So, relief should be on the way for borrowers, it just may not be in time to take pressure off budgets before the holiday season.

February cut?

As I covered here last week, the team at Bell Potter believes that the RBA will take interest rates lower in February. It said:

Slowing economic growth, a softer private sector labour market and slowing (potentially flatlining) rental inflation should keep inflation moving sustainably towards the RBA's band by the end of the year. This will likely enable the RBA to start cutting rates in early 2025, with February our base case.

Time will tell if that is the case, but next week's inflation data is likely to provide more colour on the situation.

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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