Interest rates forecast is undergoing major change.

It seems that Australians may have to wait a little longer than expected for the Reserve Bank to finally make a move and cut interest rates. Westpac has just announced that they are changing their forecast for the first cash rate cut of 2025, pushing it back from February to May. This follows a similar decision made by NAB last week.

But it's not all bad news. In a small glimmer of hope, Westpac now predicts that homeowners will see back-to-back cuts in May and July, rather than having them spread out over a longer period of time. According to Westpac chief economist Luci Ellis, there is still a possibility that the cuts could happen earlier in February or March, but it's no longer the most likely scenario.

On the other hand, there is also a risk that the start date for the cuts could be even later if inflation doesn't decrease as the RBA (Reserve Bank of Australia) is currently forecasting. Ellis explains that the longer the RBA Board waits, the more likely they will need to make faster cuts afterwards, as it may indicate that they have waited too long.

Despite this change in forecast, Westpac has not altered their prediction for where they believe interest rates will be at the end of the year. They still expect the cash rate to reach 3.35 per cent in December 2025, which is a whole percentage point lower than the current rate.

While NAB also expects the RBA to start cutting rates in May, the other two big four banks, Commonwealth Bank and ANZ, have their sights set on a February cut. Ellis points out that although the RBA has recently indicated that rates will stay the same for the next six months, there is a chance that they may need to alter their outlook and make a move earlier.

She explains that things can change quickly and that the RBA's view of the economy seems to be more optimistic than what is supported by evidence. She references a previous instance in February 2022 where the RBA did not expect to raise rates anytime soon, yet ended up doing so in May of that year. Ellis believes that when new information arises, it's necessary to adapt and change one's perspective.

She also mentions that the Reserve Bank of New Zealand made a similar quick change this year, with rates being cut in August after previously planning to keep them steady for the whole year.

The next decision from the Reserve Bank board will be released on December 10, with the following meeting scheduled for February. In the meantime, Australians can stay updated on all the latest news by downloading the 9News app, available on both the Apple App Store and Google Play.

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