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

Will borrowers need to wait until the middle of next year for relief? Let's find out.

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Animation of a man measuring a percentage sign, symbolising rising interest rates.

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I've said it before and I'll say it again, what a difference a week makes for interest rates.

Only recently the market was expecting the Reserve Bank of Australia (RBA) to make a cut to the cash rate before then of the year.

Then suddenly expectations changed and borrowers were warned that February was more likely to be the month when the central bank finally takes action.

Now, following the release of the minutes from the RBA's most recent meeting, much to the dismay of mortgage holders, the market is pushing back its rate cut expectations even further.

At the time of writing, the ASX 30 Day Interbank Cash Rate Futures December 2024 contract was trading at 95.675, indicating a 9% expectation of an interest rate decrease to 4.1% at the next RBA Board meeting.

Even worse, the implied yield curve points to the first interest rate cut taking place in June or July of 2025. This is a bitter blow to the many Australians that are struggling after rates surged higher over the past couple of years.

But does the Westpac Banking Corp (ASX: WBC) economics team agree with the market? Let's see what its team is saying following last week's data dump.

When does Westpac expect interest rates to fall?

According to its latest weekly economics report, unfortunately Australia's oldest bank agrees that there will be no cut to rates in February anymore.

Though, its chief economist, Luci Ellis, doesn't believe that the delay will mean higher interest rates in the future. She continues to believe that the RBA will take the cash rate down to 3.35% by the end of 2025. Ellis said:

We have revised our view of the most likely scenario for the path of the RBA's cash rate, pushing out the start date of the rate-cutting cycle from February to May. Similar to the pattern in some peer economies, we expect the initial moves to be somewhat front-loaded, with consecutive cuts in late May and early July. This is also a change from our previous expectation of a moderate pace of decline of one cut per quarter. We continue to expect the terminal rate to be 3.35%, to be reached by year-end 2025.

And while Ellis isn't ruling out cuts in February, she also isn't ruling out an even later start. The chief economist said:

As always, our view on the cash rate is predicated on things turning out broadly as we expect, which can differ from the RBA's own view. An earlier start in February or March is still possible, but it is no longer more likely than a May start date. A later start date is also a risk scenario, if inflation does not decline as the RBA is currently forecasting, let alone our own marginally more dovish expectation. That said, the longer the RBA Board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long.

Overall, not the news that borrowers wanted to hear. But a lot can change in a short period of time, so this certainly isn't the end of the story.

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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