Mortgage payments to fall ‘by year’s end’

Mortgage interest payments could start falling as soon as the end of this year, with three big banks predicting that the Reserve Bank will slash rates through early 2024.

It should be getting easier to service a mortgage from early next year, economists say. Picture: AFP

Mortgage interest payments could start falling as soon as the end of this year, with three of the big four banks predicting that falling inflation and rising unemployment will lead the Reserve Bank to slash rates through early 2024.

The projected U-turn in monetary policy comes as Jim Chalmers on Friday receives the Reserve Bank expert review panel’s report into the central bank’s operations, governance and performance.

The report, which the Treasurer has committed to releasing publicly in April, is expected to include recommendations to devolve monetary policy decisions to a secondary, specialist board, and include suggestions on how to improve the bank’s communications.

Dr Chalmers on Thursday morning said the report would be made public in April, and he would seek bipartisan support for any ­actions taken in response to the report, especially where legislative changes might be required. “We want to build the respect and reputation of the RBA,” he said.

With mortgage holders paying substantially more interest following 10 straight rate increases, CBA head of Australian economics Gareth Aird said after one more hike to 3.85 per cent in May, rates would start falling from November as the economy slowed, unemployment crept higher, and price pressures eased.

Further policy easing in December, February and in the June quarter would leave the key cash rate at 2.85 per cent by the middle of 2024, Mr Aird said.

“We think the household sector will need that rates relief, and in order for unemployment not to rise too high,” he said, adding that there could be pockets where decelerating inflation extended to outright price falls for some goods as retailers passed on dramatic falls in costs for major expenses such as shipping.

Westpac, which also thinks the RBA will deliver another hike in May after pausing next week, predicts four rate cuts in 2024, starting in February or March, to end the year at 2.85 per cent.

NAB economists – who still see a final hike next Tuesday as likely – similarly see multiple downward moves from early next year to 3.1 per cent by the June quarter of 2024.

The outlier among the big four banks was ANZ, which sees two more hikes in April and May and then for rates to stay at the peak of 4.1 per cent until November 2024.

ANZ senior economist Catherine Birch said while inflation was expected to fall, it would remain persistently high and at a level that would prevent the RBA from easing policy settings for fear of not achieving its mandate. “The RBA will want to be very confident inflation is coming back to target, and there is a very ­realistic scenario where annual inflation comes down but then plateaus above that 2-3 per cent,” she said.

Economists on Thursday recalibrated their forecasts for the key cash rate following clear evidence from the day before that consumer price growth cooled through early 2023. Monthly figures from the Australian Bureau of Statistics released on Wednesday showed inflation in the year to February dropped to 6.8 per cent from 7.4 per cent in January and 8.4 per cent in December.

Mr Aird said the rate hike it predicted for next week would now happen in May – but even that forecast would be dependent on what message RBA governor Philip Lowe delivers in his statement on Tuesday, and in a speech the following day.

“The key thing for us is that the Reserve Bank has sounded like they would like to pause. If the board is of the view that the partial inflation data is coming a little bit softer, it does makes a lot of sense to pause and wait to see the March quarter consumer price data (on April 26),” he said.