Experts make 2025 interest rates predictions - including one earth-shattering call

Aussies might not get a break from the cost of living crisis at all in 2025, with experts predicting interest rates aren’t going anywhere.

Interest rate speculation was never ending during 2024. We were expecting rate cuts midway through the year, before having our expectations managed by the RBA.

Then it was going to be by the end of the year; then not at all this year; then not until May in 2025.

The easiest prediction to make has been that no one knows what’s going on.

One thing we do know is that Christmas will be a lot less merry for Aussie families this year, thanks to crippling mortgage stress.

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We are now preparing for another year of uncertainty. Three of the four big banks have predicted a first rate cut in May next year. Only CBA is sticking with its belief that the RBA will pull the trigger in February.

To make sense of it all, we asked some finance experts what they thought would happen to interest rates in the year ahead - including an earth-shattering call from Andrew Wilson of My Housing Market.

THE UPSIDE RISK FACTOR

There is much debate among experts on what will happen to rates in 2025.

Rates are unlikely to be cut at all in 2025, according to Andrew Wilson of My Housing Market.

“The RBA preferred inflation measure remains well above the bank’s target range with the latest data tracking higher,” Wilson explained.

“The RBA has consistently stated that it intends to continue with restrictive monetary policy until its preferred measure of inflation – currently at 3.5 per cent – remains sustainably in the midpoint of its 2 – 3 per cent target range. The Bank predicts this will not be achieved until 2026. Rates are most likely therefore to remain on hold through 2025 – particularly given the consistent strength of the Australian economy.”

Rate cuts could be brought about by “a sharp deterioration in the Australian economy with steeply rising unemployment”, Wilson said, adding that hikes were potentially as likely.

“The RBA continues to be alert to the upside risks to inflation, early signs of which are already emerging in Europe and the US. Significant changes in global trade policies may also be inflationary. The Bank has clearly indicated its readiness to raise rates to offset higher inflation if it occurs.”

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Finder.com.au head of consumer research Graham Cooke.

THE TRUMP FACTOR

Either one or two cash rate cuts are likely in the year ahead, according to Graham Cooke, head of consumer research at Finder.

“This would see an end of year cash rate of 3.6 to 3.85 per cent,” Cooke said. However, one factor could significantly influence this: Donald Trump. His proposed tariffs on China could ignite a global trade war, indirectly affecting Australia as many of our exports are destined for China. If, as most of our panel expects, this has an inflationary effect on the Australian economy, we may not see a lower cash rate for the foreseeable future.”

Cooke said some economists believed Trump’s tariffs could have a deflationary effect in Australia, should Chinese demand for our resources dry up as a result and no other countries picked up the trading slack.

“But most economists think the opposite,” he said. “The RBA has done a commendable job of bringing down inflation in 2024, but next year all eyes will be on the White House, which could easily undo that progress.”

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Wealth Within founder Dale Gillham. Picture: PRNewsfoto/Wealth Within Institute

THE UNEMPLOYMENT FACTOR

Dale Gillham of Wealth Within believes the RBA will slash early and often in 2025.

“We should see consecutive interest rate cuts in 2025 with the total reduction in rate to the order of 1 to 1.5 per cent,” Gillham said. “I believe we should see this start to occur in the first quarter.”

Gillham said unemployment would play a telling role in the RBA’s decision making process.

“Unemployment would need to rise substantially for rates to dramatically reduce,” he said. “I can’t see this occurring as the cost of living is very high and so many people are working two or more jobs.

“If unemployment drops and or inflation starts to rise again, this would cause the RBA to put any rate cuts on hold and even consider raising them. This seems unlikely at present with so much mortgage stress and many struggling to make ends meet.”

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Metropole Property Strategists’ CEO Michael Yardney.

THE INTERNATIONAL FACTORS

A May rate cut, followed by two or three more cuts throughout the second half of 2025, is the most likely scenario for Michael Yardney, founder of Metropole Property Strategists.

Yardney expects a 3.6 per cent cash rate this time next year, though notes that a “significant slowdown in economic growth, marked by declining GDP and rising unemployment, could prompt the RBA to implement more substantial rate cuts to stimulate the economy”.

“International factors, such as a downturn in major economies or geopolitical tensions, could negatively impact Australia’s economy, leading the RBA to adopt a more accommodative monetary policy,” he said.

“A sharp decline in inflation (below the RBA’s target range of 2-3 per cent) could lead to more aggressive rate cuts to support economic activity.”

Meanwhile, the RBA could consider raising rates, Yardney said, if underlying inflation remained too high.

“A persistent, strong employment sector with low unemployment rates would be positive for consumer spending, which is inflationary and delay rate cuts.”

Originally published as Experts make 2025 interest rates predictions - including one earth-shattering call