Will the RBA hike the cash rate in February 2024? CBA, ANZ, NAB, and Westpac home loan predictions

Another year, another look at the Reserve Bank of Australia (RBA). The last two years have seen a crusade against inflation from the central bank, adding 4.25% to the cash rate between May 2022 and December 2023.

Rate hikes have come hard and fast, but it looks like the RBA is getting ready to hold. So, what can home loan borrowers expect for the first interest rate decision of 2024? And is this the year we finally get the first cash rate cut since 2020?

Let’s break down forecasts and predictions from the Big Four Banks for the RBA’s 6 February decision.

Most experts agree the RBA will not hike interest rates in February 2024. 

This is primarily due to moderating inflation. Currently, the cash rate is in deeply restrictive territory at 4.35%, so it’s working to pump the brakes on the economy and slow things down. If inflation ticks up, then the RBA will hike, but there isn’t a pressing need right now. 

“There are definite signs of softening throughout the economy,” says Mozo interest rates expert Peter Marshall.

“We had some spending figures released at the end of last year, which were very disappointing. So there will not be a rate increase in February.”

Even hawkish NAB has revised its cash rate forecasts. Previously, the big bank had predicted another rate hike for 2024, but in light of cooler-than-expected inflation and spending data, NAB has joined CommBank, Westpac, and ANZ on a united front.

Their call? No rate hike for February – or indeed, no rate hikes for 2024.

Big Four Bank cash rate predictions – 31 January 2024

According to the Big Four Banks, this means we’ve reached the cash rate peak for this cycle, so 4.35% is how high interest rates will go in 2024.

“There are no more rate hikes coming,” says Marshall. “We’re at the peak of the cycle. It would take something extraordinary and unexpected to change that – and I can’t see where that would come from.”

So, unless inflation does something completely unexpected, or if we hit a recession, the cash rate will remain at its current level of 4.35% until inflation comes down.

Official interest rates will decrease when inflation hits the top of the RBA’s target band – 3%. The latest annual CPI figure suggests headline inflation is at 4.1%. This is a sharper drop than the RBA predicted, but still means we have a while to go. 

But how much longer? Let’s look at the Big Bank forecasts for when interest rates will come down. 

The earliest the Big Banks foresee rate cuts is September 2024 – the latest has them starting in December 2024. The rate cuts will likely be made in gradual 0.25% increments to bring the cash rate down into ‘neutral’ territory, between 2% to 3%, sometime in 2025. 

When interest rates will come down – 31 January 2024

CBA predicts the fastest and steepest round of rate cuts, putting the cash rate into neutral at 2.85% by June 2025. NAB has the slowest pace, only taking the cash rate to a final 3.10% by December 2025. Westpac is the medium between the two. 

ANZ hasn’t made public predictions about the path of rate cuts.

Mozo rates expert Peter Marshall suggests that rate cuts could come as early as July 2024, but none of these timelines are certain. The Big Banks certainly revised their rate peak predictions enough times for us to know that monetary policy forecasts aren’t an exact science. 

Besides, RBA rate changes operate with a delay. The average home loan borrower will have to wait until around two months after the first rate cut to start seeing savings in their repayments. 

However, a rate-cut timeline can give borrowers and buyers an idea of where the economy could go. Since mortgage repayments are a long-haul game, knowing when savings could start tells you when could be a good time to buy, save, or refinance.

Interest rate hikes have been a large part of why home loan repayments are so expensive. The differences are stark when looking at how much a typical borrower has to spend now vs. then.

Interest rates will likely hold about where they are for at least six months, so borrowers hoping to save interest will need to continue cost-saving strategies like:

• Putting savings in an offset account.
• Negotiating their interest rate.
• Making extra repayments.

However, Marshall warns against waiting for home loan rates to come down to buy property. Interest rates only make up part of the average mortgage repayment. The loan amount (principal) affects your finances much more. 

And since property prices are projected to rise 5% this year, by the time rates start coming down, the average mortgage size will have ballooned so much the variable savings might not be worth it.

“Do not wait for rate cuts to make things affordable,” says Marshall. “If you can get in now, the sooner, the better, because instead of paying rent, you’ll pay off your mortgage.

“Rate cuts will come. If you have to max out now and go, ‘Okay, we’re going to struggle for a while,’ you can be reasonably confident that the interest rate on your mortgage will start to drop before the end of this year.”

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