MAJOR BANKS SEE RATE CUTS ON THE HORIZON AS AUSTRALIAN ECONOMY SLOWS

Australia’s interest rate outlook appears to be shifting, with three of the country’s four major banks now predicting that the Reserve Bank of Australia (RBA) has reached the peak of the current tightening cycle.

Economists at ANZ, Commonwealth Bank and NAB all believe the cash rate will remain unchanged before eventually moving lower in 2027 as inflation continues to ease and economic growth slows.

ANZ this week revised its forecast, abandoning its previous expectation that rates would remain unchanged for an extended period. The bank now anticipates two rate cuts during 2027.

The change reflects growing confidence among economists that inflationary pressures are gradually coming under control, reducing the need for further monetary tightening.

HSBC chief economist Paul Bloxham has also shifted his outlook. While he still expects inflation to remain elevated in the short term, he now believes the RBA is likely to keep rates on hold before eventually beginning a rate-cutting cycle in late 2027.

“Inflation is still too high and is set to rise further before it falls. That being said, the RBA has already taken significant action to deal with this surge in inflation — and, critically, the action is working,” Bloxham said.

He added that weakening economic growth is likely to convince the central bank to remain on hold rather than pursue additional rate hikes.

Commonwealth Bank continues to forecast that the RBA will leave rates unchanged before delivering two cuts in mid-2027, while NAB maintains a similar view.

Not everyone agrees.

Financial markets continue to price in the possibility of another rate increase over the next 12 months, suggesting investors remain concerned about inflation risks.

Westpac remains the most hawkish among the major banks. The bank reaffirmed its expectation that the RBA will increase the cash rate in both August and September this year, with no rate cuts expected until 2028.

Westpac chief economist Luci Ellis forecasts inflation will peak at 4.7 per cent later this year — lower than previously expected but still above the Reserve Bank’s own projections.

The differing forecasts highlight the uncertainty facing policymakers as they attempt to balance inflation control with the growing risk of slower economic growth.

For Australian households struggling with mortgage repayments and cost-of-living pressures, the debate over future interest rates remains one of the most closely watched issues in the economy.

While the consensus among economists is increasingly moving towards stability and eventual rate cuts, the timing will ultimately depend on how quickly inflation returns to the RBA’s target range and whether the economy continues to lose momentum.

For now, borrowers may take some comfort from one emerging trend: most major banks no longer expect interest rates to move higher.

The post MAJOR BANKS SEE RATE CUTS ON THE HORIZON AS AUSTRALIAN ECONOMY SLOWS first appeared on Allora! Italian Australian News.