RBA cash rate March 2024: predicted rate cuts could help borrowers save thousands

The board of the Reserve Bank of Australia (RBA) has met for the second time this year, holding the cash rate steady at 4.35%, with the pause coming as more welcome relief for borrowers who saw significant interest rate hikes through 2022 and 2023.

The central bank raised rates throughout the past two years in an attempt to get soaring inflation back within its target range of 2-3%, and now inflation in the economy has begun to cool, the constant rate rises also appear to have come to an end.

Economists at Australia’s big banks are predicting rate cuts by the end of the year – Commonwealth Bank and Westpac predict we mays see the first cuts occur around September, with ANZ calling the first cut for November, and NAB estimating cuts some time in the December quarter.

A cash rate cut would likely see banks and lenders lowering their variable home loan interest rates – so what could this actually mean for home loan borrowers after two years of interest rate pain?

How much could you save?

According to new Canstar research, if the major banks’ current cash rate forecasts are passed on to borrowers in full, then some home loan variable rate payers could be looking at savings in the thousands of dollars.

All big four banks forecast rate cuts of between 0.75 and 1.5 percentage points from spring onwards. If passed on in full, big four bank customers repaying an average $600,000 loan at a current interest rate of 6.90%, could save between $3,217 and $6,825 in repayments or anywhere from $4,092 to $8,808 in interest by the end of next year.

While there is no guarantee that the big banks will pass the proposed rate cuts on in full, if they were to do so, here are some potential savings that home loan borrowers could see:

Savings If Major Bank Forecasts Are Fully Passed On To Borrowers

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Source: www.canstar.com.au – 13/03/2024. Starting rate of 6.90% based on average owner occupier variable home loan on Canstar’s database, available for a $600k, P&I, 80%LVR loan; excluding introductory and other special condition loans. Calculations assume a 30 year loan term, starting on Mar-23 with interest rate cuts being 0.25%. Where majors have forecasted a rate cut in a financial quarter, it has been assumed to be in the last month of said quarter.

Predicted cuts a “welcome relief” for borrowers

“A rate cut of any kind will be a welcome relief for many borrowers battling higher repayments and the compounding cost of living crisis,” says Canstar finance expert  Steve Mickenbecker.

“If the big bank rate cut forecasts materialise, borrowers could see substantial savings in their repayments and the interest paid over the coming eighteen months.”

“Borrowers have borne the brunt of the Reserve Bank’s fight against inflation, coping with not just the higher cost of living but also loan repayments that have increased through the roof. At last, they can feel that the countdown to lower interest rates has started.”

“In the last cash rate cutting cycle the big banks held back part of the Reserve Bank cuts when they eventually came. This time around borrowers should not allow their relief at receiving a repayment reduction to persuade them to accept anything less than the full RBA rate cut.”

“Even the most optimistic forecast from the big banks puts the first Reserve Bank cut six months away. Bringing a rate cut forward by refinancing into a lower rate loan now will have borrowers double-dipping on savings and bringing them forward. It’s time to look for a better rate now and not wait for the Reserve Bank.”

The RBA’s board will meet again across two days on Monday May 6 and Tuesday May 7, with the next cash rate call coming on the afternoon of the 7th.