Rate Cuts Expected in a Mixed Economic Outlook for 2025
Australians may see interest rate cuts in 2025, offering some relief amid ongoing economic challenges and a cautious recovery.
Australia, Interest Rates, Economy, Inflation, Mortgage, Cost of Living
Australia: It’s been a tough year for many folks in Australia, but there’s a glimmer of hope for 2025. People are buzzing about potential interest rate cuts coming up in the first half of the year. This could really help ease some financial pressure on households.
Stephen Koukoulas, a market economist, believes that with household incomes looking a bit healthier and the global economy bouncing back, Australia might see some growth over the next year. But, he also warns that the jobless rate could tick up to around 4.5 percent, which isn’t great news.
The Reserve Bank is going to keep a close eye on inflation and job numbers in the coming months. Koukoulas mentioned that while unemployment isn’t expected to skyrocket, a weaker job market could put a bit of a damper on spending.
For the Reserve Bank, inflation is still the main focus. Koukoulas feels optimistic that prices are moving in the right direction. The December quarter inflation figures, due at the end of January, will be crucial for the first RBA meeting in February.
He thinks that with inflation improving, wage growth slowing down, and the job market easing up, the RBA might be ready to start cutting rates soon. He’s predicting a modest easing cycle with about three cuts of 25 basis points each.
Mortgage holders can look forward to some relief in 2025. Canstar’s Sally Tindall pointed out that while the depth of these cuts is still uncertain, it’s important for borrowers not to jump the gun on their budgets just yet.
According to the National Australia Bank, if there are five cuts by mid-2026, someone with a $600,000 mortgage could see their monthly payments drop by about $440. But if the RBA only cuts rates twice, as ANZ suggests, the reduction would be much smaller, around $181.
Tindall believes that while variable-rate mortgage holders are likely to get some relief, 2025 will still be a tough year for many. She noted that interest rates, rents, and grocery prices aren’t going back to what they used to be.
As we head into 2025, the U.S. is a big question mark, especially with Donald Trump back in the White House. Koukoulas warned that a potential U.S.-China trade war could really shake things up if tariffs are put in place.
However, he also pointed out that there might be some positive moves in government spending that could help tackle the budget deficit. Back in Australia, a federal election could mean voters are hit with promises to ease the cost-of-living struggles from both political sides.
AMP’s chief economist, Shane Oliver, mentioned that the latest budget update shows a return to deficit, partly due to increased spending on childcare and other election-related expenses. He believes that while the election might lead to more government spending, it probably won’t change the overall economic policies in the near term.