Where will interest rates land at the end of 2025?
While only NAB’s chief economist Sally Auld wrongly predicted a 0.5 per cent cut to the cash rate this week, most analysts agree there will be a significant drop this year.
A widely predicted rate cut was rubber stamped by the Reserve Bank with banks announcing they would cut mortgage rates accordingly.
But question marks remain about how far will Michelle Bullock and her team at the RBA will take the rate and over the rest of the year?
Most economists are now predicting a series of cuts, bringing the cash rate down close to 3 per cent.
Only NAB’s chief economist Sally Auld, who believes the RBA has catching up to do, predicted a 0.5 per cent cut. And the bank has the cash rate at 2.6 per cent by early 2026.
“The Reserve Bank will be cutting rates when they sit down to make their decision,” she said earlier in May.
“And the reason for that is just simply that they acknowledged even after the rate cut in February that the setting, the overall setting of monetary policy here in Australia is restrictive.”
The newly installed chief economist outlook included the possibility of the double cut this month.
She said that the bank is “at least 25 basis points, maybe 50 behind where they probably should be at the moment.
“And so that’s really our argument around the 50 basis point rate cut, that the bank is just simply playing catch up and also acknowledging that there is a little bit of an impetus for them given global and local developments to get to a neutral setting more quickly than not.”
NAB is now forecasting multiple cuts, taking the cash rate to 2.6 per cent by early 2026.
Other bank forecasts are less aggressive.
CBA’s Gareth Aird expects the RBA to reach 3.35 per cent by year’s end, and sees more cuts to follow.
“We continue to look for an end year cash rate of 3.35 per cent and our base case has the RBA cutting the cash rate by 25 basis points in May, August and November.”
ANZ and Westpac also forecast 3.35 per cent by December.
AMP’s Shane Oliver adds: “For the remainder of the year we’re expecting at least another cut in August, possibly another one in November and one more early next year in February.”
“Ultimately, taking the official cash rate down to around 3.1–3.35 per cent.”
Markets are now adjusting to this outlook, with 15 lenders already cutting variable rates since April, and more expected to follow.
Canstar says over 30 lenders may soon advertise variable rates below 5.50 per cent.
If these forecasts hold, the official cash rate could finish 2025 closer to neutral than at any point since the hikes began.
