Interest rate cuts of 1pc coming in 2024: economists

Interest rates could be cut by more than 1 per cent next year. Picture: Monique Harmer/NewsWire

Homeowners paying down their mortgage may get relief in the form of interest rate cuts by early 2024, but major bank economists have warned more pain will likely squeeze household budgets before then.

More than 1 per cent might be slashed from the cash rate next year as the rapid rate rises of the past 15 months flow through and have the desired effect of slowing the economy, according to leading economists.

The call comes as major banks price in one, if not two, additional interest rate rises in the months to come after last week’s surprise decision by the Reserve Bank of Australia to lift the cash rate by 0.25 per cent.

In good news for mortgage holders who are dealing with 3 per cent of increases in 15 months, Commonwealth Bank anticipates falls of 1.25 per cent to the cash rate in 2024. The expectation is cuts will be front-loaded through the start of the year and bring the cash rate to 3.10 per cent.

CBA and ANZ both expect one further rate rise in August, after the release of quarterly inflation data.

The view is backed by HSBC chief economist Paul Bloxham, who last week said the chance of recession is now a coin toss as the economy slows on the back of one probable rate rise in August and possibly another.

As a result, he expects the cash rate to be cut to 3.50 per cent by the end of 2024. National Australia Bank is the latest financial institution to up its outlook on the trajectory of rates as inflation continues to run stronger than anticipated. NAB now expects rate rises in July and August of 25 basis points each.

NAB chief economist Alan Oster said on Tuesday that the RBA was walking an increasingly narrow path to avoid a recession. His comments were in line with a statement made last week by his counterpart at HSBC.

“While inflation has clearly peaked, and we (like the RBA) see inflation returning to the band by 2025, the extended period of inflation above target amidst a tight labour market poses the risk of stronger wage and price expectations becoming embedded,” Mr Oster said.

The economist said the “forward-looking” central bank would look to cut once it could see a slowing in growth and unemployment rising (negating the risk of ongoing strength in wage expectations) and it becomes clearer inflation is returning to target.

Westpac-MI’s latest consumer survey found most consumers expected further rate rises. Almost four in five of those surveyed expected rates to increase over the next year, while 48 per cent were bracing for an increase of 1 percentage point or more.

Sentiment around home buying remained low over the quarter. The past 16 months represent the most prolonged period of very weak buyer sentiment seen since the survey began in 1974.