ASX RBA Rate Tracker predicts four interest rate cuts within the next 12 months

Mortgage holders struggling with the highest interest rates in 12 years could save hundreds of dollars a month if the Australian share market’s prediction comes true.

The Australian Security Exchange’s RBA Target Rate Tracker on Tuesday predicted four interest rate cuts by mid-to-late 2025.

The tracker, released at the close of each trading day, calculates the probability of the Reserve Bank changing the official cash rate.

This percentage is derived from market prices in the ASX 30-Day Interbank Cash Rate Futures.

The tracker predicts a 25-basis-point interest rate cut in February, followed by three additional cuts by August.

If this holds, the official cash rate would drop from 4.35 per cent to 3.35 per cent. 

The Reserve Bank has raised interest rates 13 times since May 2022 to a 12-year high of 4.35 per cent.

Variable mortgage repayments are 70 per cent higher than they were in early 2022 as rates have climbed from starting with a ‘two’ to beginning with a ‘six’.

Finder’s head of consumer research Graham Cooke said Australians with an average mortgage of $641,143 could save $5,076 per year if these rate cuts materialise.

‘Four interest rate cuts would offer significant relief to homeowners struggling with rising mortgage repayments,’ he said.

‘It’s important to remember that these predictions are based on probability, and the future is still uncertain.

‘Homeowners on fixed-rate mortgages might not immediately feel the benefits of the cuts.

‘However, those whose fixed terms are ending soon could see better refinancing options when their loans revert to variable rates, helping them avoid the sharp increases many have faced in recent years.’

However, he warned that market sentiment on the ASX is not a guarantee that the RBA will cut interest rates.

Many Aussies are struggling under the highest interest rates in 12 years 

‘The ASX is clear on its site that the information is indicative only, meaning that while the market may be pricing in the possibility of four rate cuts, this is not a guarantee that the Reserve Bank will take action,’ he said. 

‘The ASX Target Rate Tracker reflects market sentiment based on short-term interest rate futures, but economic conditions can shift quickly. 

‘Homeowners and investors should remain cautious.’

Reserve Bank Governor Michele Bullock last month ruled out any near-term rate cut by Christmas but acknowledged this was pushing more people into financial hardship. 

‘Although this group is fairly small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage repayments,’ she told the Australian Business Economists lunch in Sydney. 

‘This includes things like cutting back on their spending to the more essential items, trading down to lower-quality goods and services, dipping into their savings or working extra hours.

‘Some may ultimately make the difficult decision to sell their homes.’

The future market, however, had until recently continued to price in rate cuts in November and December, despite Ms Bullock’s strong suggestion of no rate cuts in 2024.

‘Circumstances may change, of course, and if economic conditions don’t evolve as expected, the board will respond accordingly,’ she said.

‘But if the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term.

‘We need to see the results in inflation before we can do that.

‘If we don’t get inflation down, that’s bad for everyone, absolutely everyone. So that’s the job I’m focusing on. That’s the job the board is focusing on. I really think the board thinks at the moment, we’re still on that narrow path.’