ANZ Bank (ASX: ANZ) has made a significant shift in its interest rate forecast, now indicating that the Reserve Bank of Australia (RBA) may not lower interest rates until May 2025. This adjustment brings ANZ’s prediction in line with its peers among the nation’s largest banks, including the National Australia Bank and Westpac, presenting a grim outlook for homeowners struggling with high mortgage payments.
The revised forecast of postponing the rate cut stems from multiple factors contributing to an unexpectedly robust economic environment. Specifically, the Australian labor market has shown resilience, and business conditions have remained healthier than anticipated. Additionally, the consumer response to the implementation of Stage 3 tax cuts has been favorable, further supporting the decision to delay interest rate reductions.
ANZ’s economists now expect the RBA to make just two rate cuts in 2025, occurring in May and August, as opposed to the previously anticipated three rate cuts. The terminal cash rate is projected to land at 3.85%. This change in forecast signifies a sense of confidence in the Australian economy’s position and a belief among ANZ’s analysts that a slower approach to easing rates is warranted.
Significant in informing these revised expectations is commentary from the Reserve Bank governor, Michele Bullock. Governor Bullock highlighted concerns around the Australian inflation rate, suggesting that it may not fall back into the RBA’s target range of 2 to 3 percent until 2026. Achieving and maintaining inflation within this target range is crucial for the bank’s policy considerations, potentially influencing the pace and magnitude of interest rate adjustments.
Moreover, ANZ’s updates reflect a shift in the bank’s outlook on national economic conditions, anticipating rate cuts to be shallower than initially expected. This suggests that the economy might withstand the financial pressures without the need for aggressive monetary policy support that was previously assumed necessary.
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The Aussie markets found some strength on the day, with the ASX 200 gaining 0.14% to start the week, as the All Ords closed above 8,700 at 8,705, making gains of 0.068%.
The implications of ANZ’s forecast are significant for mortgage holders, who may have to endure high-interest rates longer than they might have hoped. This reality could add strain to household finances, particularly for those who are already stretched thin. For the broader Australian economy, the delayed rate cuts and perceived economic resilience may provide a mixed bag of outcomes, with potential benefits in the form of sustained economic activity, countered by the challenges faced by consumers operating within a tight financial landscape.
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