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Last Updated: 8th August, 2024

When Will Interest Rates Go Down?

Published by Otto Dargan on August 16, 2023
As the Reserve Bank of Australia (RBA) works to control rising prices, many people ask: When will interest rates go down? To help answer this question, Home Loan Experts CEO Alan Hemmings shares insights that mix careful thinking with hopeful expectations about interest rates.

Expert Insights: Alan Hemmings’ Perspective

“Given the RBA will be watching the economy closely, I think it will be some time before we start seeing rates reduce,” Hemmings says. “I still think if we have a bad inflation result (it stagnates or increases a little), the RBA will move quickly to increase again (as we have just seen in the US), but only once or, at worst, twice.” While the prospect of rate reductions is tethered to a measured pace, Hemmings offers a glimpse into potential triggers for rate adjustments: “Rate reductions are likely not going to start until some time in 2024,” he cautions. Hemmings’ insights highlight that the RBA is being careful. It is considering many things, like how the economy is doing and what’s happening around the world, before making decisions about interest rates.

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Big Four Bank Forecasts: Glimpses into the Future

Major banks offer projections on when interest rates will go down.
    • CBA envisions four reductions, starting from March 2024, aimed at bringing the cash rate down to 3.10% by the end of next year.
    • Westpac, on the other hand, projects a more gradual decline, forecasting six rate cuts commencing in September 2024, and leading to a cash rate of 2.60% by late 2025.
    • NAB, while forecasting one more rate increase this year, envisions a series of cuts in 2024 and 2025, ultimately seeking to bring the rate down to 3.10%
    • ANZ predicts only one rate reduction – a 0.25-percentage-point cut – and does not anticipate it coming until the latter part of 2024.

Understanding Inflation And Rate Adjustment

Think of inflation like a car going faster and faster. The RBA is like the driver, gently using the brake (the cash rate) to slow down the car smoothly so it doesn’t suddenly stop and cause a crash or recession. Basically, expect interest rates to stay higher until they slowly start to come down. Currently, the inflation rate is at 6%. The RBA has already raised the cash rate several times this year in an attempt to bring inflation under control. It will probably continue to raise rates until inflation falls to its target of 2% to 3%.

What Caused Inflation To Rise?

Inflation, the rise in general prices of goods and services, plays a pivotal role in the movement of interest rates. In December 2022, Australia experienced a significant surge in inflation, reaching a 33-year high of 7.8%. Several factors contributed to this surge, including the war in Ukraine, supply-chain disruptions due to the ongoing pandemic, strong demand, and increased wages. The war in Ukraine affected the prices of commodities, such as oil and wheat, resulting in inflation. The disruption of global supply chains made it more challenging for businesses to acquire necessary goods and services, adding to the inflationary pressure. Moreover, Australia’s robust post-pandemic economic recovery led to heightened demand for various products and services, further contributing to inflation. Rising wages in the country put upward pressure on prices as businesses pass on these higher costs to consumers.

Stay Prepared!

In a world of ups and downs, being ready is important. No matter if rates go up or down, taking action can help:

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