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After a year of interest rates remaining firmly stuck at their decade-high of 4.35 per cent, Australian mortgage holders are desperate for some relief from the Reserve Bank in 2025.
Economists are largely expecting the cash rate to start coming down midway through the year, although there are differing opinions on how many cuts the RBA will deliver.
This is what we know.
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When will interest rates come down?
We don't know when interest rates will start easing off, and RBA Governor Michele Bullock has been very cautious to avoid suggesting a timeframe for when (or even if) she and her board will pull the trigger on a cut.
Other economists are far more willing to speculate when that will happen.
Commonwealth Bank is the most optimistic of the big four banks. It believes the RBA will ease the cash rate by 0.25 per cent in its first meeting of 2025, in February.
The other three believe Australians will have to wait until the middle of the year for that relief. ANZ, Westpac and NAB have all pencilled in the first rate cut in May.
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The broader market falls slightly in between the two.
As of early December, financial markets are pricing in a cut in April, although economists were slightly more optimistic about an early move following Michele Bullock's comments after the RBA's last rates decision of the year.
It's worth keeping in mind these are little more than predictions, and have been proven inaccurate in the past.
Earlier this year, forecasts were pointing to a cut well before Christmas, only to be pushed further and further back as core inflation remained out of the RBA's target range and unemployment stayed low.
One forecast that was a bit of an outlier when it was released was that of Treasury.
Included deep in May's federal budget papers was the line "the cash rate is assumed to gradually ease from around the middle of 2025".
That was far more conservative than other forecasts at the time, but is now in line with what economists largely expect.
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What will interest rates be at the end of 2025?
Here's where there's a bit more conjecture around the cash rate.
The big four are predicting anywhere between two and five cuts in 2025.
If CBA and Westpac are on the money, interest rates will be eased four times over the course of the year, bringing them down to 3.35 per cent by next Christmas.
ANZ isn't as rosy on mortgage holders' prospects. It's only expecting two cuts, and an end-year cash rate of 3.85 per cent.
NAB has gone in the opposite direction, expecting 18 months of inaction to be followed by five cuts in the six meetings between May and December.
That would bring interest rates down to 3.1 per cent by the end of 2025.
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Outside the big four, we see more variation. The market is pricing in an end-year cash rate of 3.6 per cent, while global economic body the OECD believes it will reach 3.35 per cent by "early 2026".
They might seem like small differences, but the impact on household finances would be significant.
For example, for someone with the average home loan of $640,998, a 0.25 per cent change in interest rates means $144 less in mortgage payments each month, or $1728 over the course of a year.
Five rate cuts next year would therefore represent a very welcome $720 in savings every month – $432 more than what would be the case if there are only two.
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
