Oxford Economics warns no rate cut in Australia until Q2 2025

Aussie homeowners have been smashed with interest rate pain for years now and a leading economist warns the stress isn’t going to end anytime soon.

There’s likely to be more suffering ahead for Aussie homeowners buckling under years of tightening mortgage stress, with a leading industry forecaster warning interest rate relief could still be many months away.

Oxford Economics Australia expects the Reserve Bank of Australia to begin cutting rates in the second quarter of 2025, far beyond a late 2024 cut expected by other forecasters including banking giant Commonwealth Bank.

“Given the RBA’s hawkish rhetoric, we don’t see rate cuts coming until the second quarter of 2025,” Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said ahead of the research firm’s biannual economic outlook.

Mr Langcake credits “strong cross currents” in the Australian economy for the delayed cut, with policymakers navigating a “challenging” outlook and environment.

“The labour market has defied a marked slowdown in activity, which is testing the RBA’s very patient approach to bringing inflation back to its target,” he said.

“Concurrently, a significant easing in fiscal policy will give the economy a boost, which is welcome for households, but less so for inflation hawks.”

The forecaster expects headline inflation to be very close to the top of the RBA’s target range of 2-3 per cent by the end of 2024, “but with utilities subsidies providing much of the disinflation impetus, the RBA will largely ignore the headline data,” Mr Langcake said.

Australian homeowners have been slugged with 13 interest rate rises since May 2022. Picture: NewsWire / David Crosling

The RBA pursued an aggressive rate tightening cycle from May 2022 to suppress escalating inflation in the economy, with the benchmark cash rate rising from 0.1 per cent to 4.35 per cent in November 2023.

The rate has been on hold since then and RBA Governor Michele Bullock has warned the Board would need to see material changes in prices before delivering a cut.

“Based on what I know today and what the board knows today, what we can say is that a near-term reduction in the cash rate doesn’t align with the board’s current thinking,” she said after the Board’s August meeting.

“We’ve seen from overseas experience how bumpy inflation can be on the way down and across the economy we need to see demand and supply coming back into better balance.”

The combined hikes have saddled homeowners with hundreds of dollars of extra monthly mortgage payments.

Fresh data from RateCity shows repayments on a $500,000, 30-year mortgage hit $3105 a month for the June 2024 quarter, compared to $1989 in the March 2022 quarter when the hikes started, for a $1116 increase per month.

The value of home loans in arrears by 30 to 89 days is also rising and now stands at $14.9bn, according to the APRA Quarterly ADI Property Exposure data for the June 2024 quarter.

In March 2022, the value stood at $5.9bn.

“Some Australians saddled with mortgages are struggling to keep up with the repayments, as more households fall into arrears,” RateCity.com.au money editor Laine Gordon said.

“Despite record high levels of savings in the bank, some families are dipping into their offset stash to keep up with rising cost of living pressures.

“These are worrying signs for borrowers, but let’s not throw the baby out with the bathwater.

“Non-performing loans accounted for just 1.03 per cent of all credit outstanding in the June 2024 quarter, that’s a slight increase from 0.91 per cent in the year before Covid.”

Australia’s inflation fight contrasts with other leading, which are moving towards cuts.

The US Federal Reserve is widely expected to deliver a cut in the world’s largest economy this week.

Commonwealth Bank maintained its expectation for a late 2024 cut in its latest household spending report.

“We remain of the view that softer economic data, a further deceleration in inflation and the easing of monetary policy in many other major central banks will see the RBA begin to cut interest rates later in 2024, although the risk sits with a start date in early 2025,” the report states.

Originally published as Oxford Economics warns no rate cut in Australia until Q2 2025