February rate cuts: Big bank predictions aligning as inflation cools

NAB has been an outlier among the big four banks in recent months, conservatively looking towards next May as the most likely time for a rate cut from the RBA.

Its revised cash rate forecast this week, however, follows confirmation last week that headline inflation has fallen to its lowest level since August 2021.

While the Reserve Bank is playing its cards close to its chest when it comes to whether it will slash interest rates to match, Westpac, ANZ and NAB are predicting cash rates of 3.35%, 3.60% and 3.10% respectively at the end of the cutting cycle.

Commonwealth Bank is also forecasting 3.10% but is expecting the first rate cut to come in December.

Despite RBA caution, latest authorised deposit-taking institution data from the Australian Prudential Regulation Authority this week showed its decision to hold rates at 4.35% has not dampened conditions for the home loan market.

With that in mind PropTrack senior economist Anne Flaherty told Mortgage Choice that refinancing may pick up again over summer after a slow year.

PropTrack senior economist Anne Flaherty says a one-year fixed rate term could prove attractive. Picture: realestate.com.au

“If you were to lock in for one year on a on a lower term fixed rate, that's actually quite attractive,” Ms Flaherty said. “There's not that much risk involved that at the same time, you can be guaranteed to get a lower rate than what you're paying if you're currently on a variable rate.”

She added: “We know that people are incredibly stretched at the moment, so people will be actively looking to refinance to a more attractive loan product, given the fact that we're seeing, households so stretched with interest rates as high as they are and the cost of living as high as it is.”

Time to fix?

Canstar data insights director Sally Tindall said a cash rate cut in February would depend on core inflation continuing to track in the right direction or unemployment significantly accelerating.

She warned the outlook for both inflation and unemployment was “still highly uncertain”, however.

“A couple of wobbly sets of inflation data could see the RBA holding for longer, particularly if unemployment remains relatively steady,” Ms Tindall said.

Economists and brokers have been agreeing all through winter that it is slightly too soon to go with a fixed-rate home loan option. That line of messaging has been strong for several months, despite the big four slashing rates on select fixed products back in August and September.

Inflation is finally starting to cool but the Reserve Bank has signalled it will wait to see quarterly data from the ABS. Picture: Getty

A “downpour of fixed mortgage rate cuts” may finally change the game, Ms Tindall said.

Twelve lenders including Teachers Mutual Bank and Adelaide Bank have how cut more than 300 different rates across both investor and owner-occupier loans in the last week.

Yesterday, the country’s fifth-largest lender, Macquarie Bank, slashed a range of fixed rates by up to 0.40 percentage points.

“112 fixed rates are now lower than the lowest variable, however, the gap between the lowest fixed and variable rates remains just 0.26 percentage points,” Ms Tindall said.

“Australia’s biggest bank, CBA, was among the list of banks cutting and hiking term deposit rates. The bank made cuts of up to 0.15 percentage points to a range of rates but also increased a much smaller number of rates by up to 0.40 percentage points. As a result, the bank’s highest term deposit rate is now 4.75 per cent for nine months.”

Ms Flaherty said some savers were still concerned of possible rate rises, even though economists broadly expect that for interest rates, the next move will be down.

Major lenders across Australia have begun to slash their rates on fixed-term products. Picture: Getty

“Fixed interest rates on home loans have started to come down and I think with more banks starting to offer lower fixed term interest rates, it is going to help recover some of that confidence about where interest rates are heading,” she said.

“It’s probably going to entice people to potentially make a move as they start to see the interest rates become a little bit more attractive.”

Melbourne-based Mortgage Choice broker Josh Almond said it's easy for both mortgage holders and prospective buyers to get a bit distracted by the ups and downs of inflation.

“From an economist prediction perspective, I think it's really important they really focus on what’s happening now,” he said. “Not only own financial position but also what they’re looking to try and achieve in terms of a purchase.”

Speaking on interest rate cuts, Mr Almond said it is “fantastic” cuts “might be coming quicker than first thought”.

“But we certainly don't get too much into the detail around what may or may not happen in four, five-, or six-months’ time,” he added. “You have to live for the now in terms of your ability to be able to borrow and repay. Any perceived rate cut that might be coming down the pipe in a few months is a bonus.”