ANZ Bank Pushes Rate Cut Timeline until May 2025 in Light of Inflation Risks
Australia’s Reserve Bank interest rate cut timeline continues to slide further into the future. ANZ, one of the big four banks, has adjusted its prediction to May 2025. This decision follows Reserve Bank Governor Michele Bullock’s recent speech, which struck a hawkish tone on monetary policy. Meanwhile, Australians are beginning to spend their Stage 3 tax cuts.
Here’s what ANZ’s latest forecast means for mortgage holders, consumer spending, and inflation management.
A Stronger Economy and Revised Rate Cut Timeline
ANZ’s Head of Australian Economics, Adam Boyton, confirmed a change in the bank’s forecast, now predicting interest rate cuts to start later than expected, in May 2025. Previously, the bank expected rates to begin easing earlier, but the economy’s resilience has altered this outlook.
Mr Boyton shared that the bank’s earlier assumption—that six-month annualised trimmed mean inflation would fall just within the RBA’s target range by February—no longer holds weight. Instead, the Reserve Bank’s continued focus on demand exceeding supply and high inflation risks has delayed ANZ’s timeline.
“With the economy – notably jobs growth and business conditions – continuing to show resilience, we are also shifting our view on the quantum of rate cuts and now expect only two, in May and August 2025. That leaves the terminal cash rate at 3.85 per cent,” said Mr Boyton.
Shallower Rate Cuts Expected
Not only are the rate cuts expected to come later, but they are also forecasted to be less “deep” than ANZ initially anticipated. When the bank revised its interest rate outlook in June, it maintained three rate cuts in its forecast. Yet, it noted that just two cuts (50 basis points in total) were more likely than four (100 basis points).
The updated outlook aligns with the economy’s stronger-than-expected performance. “Only two cuts are now needed to help spur on consumer spending,” added Mr Boyton.
This may come as unwelcome news for mortgage holders, who have already faced significant monthly pressure due to rising interest rates.
ANZ Aligns With NAB’s Predictions
ANZ is not alone in its revision. NAB was the first of the big four banks to move its interest rate cut prediction to May 2025. NAB highlighted labour market resilience and the RBA’s inflation concerns as key drivers of its updated stance.
The NAB monetary policy review explained, “The labour market has been stronger than expected, and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish.”
Although NAB had previously predicted the first rate cut would occur in February 2025, consistent labour market strength has delayed that forecast by three months.
Inflation May Not Reach Target Range Until 2026
RBA Governor Michele Bullock’s stark comments on inflation further confirm the need for cautious monetary policy. During her recent speech, she revealed that inflation probably won’t sustainably fall within the target range of 2-3 per cent until 2026. Nevertheless, Ms Bullock emphasised that it is not just hitting the target range that matters but the confidence that inflation is heading firmly in that direction.
“Overall, the earlier period of high inflation has imposed large costs on families and businesses across Australia, and especially the most vulnerable,” she said. “This is why returning inflation sustainably to the target within a reasonable time frame remains the board’s highest priority.”
High and sticky inflation has created a challenging situation for households facing cost-of-living pressures. Failures to bring inflation under control, Ms Bullock warned, could result in even more prolonged restrictive monetary policy.
What This Means for Australian Households
For mortgage holders and everyday Australians, the news of delayed and shallower interest rate cuts weakens the hope of imminent financial relief. Rising household costs have already stretched budgets, while utility bills and grocery prices continue to climb.
Similarly, with fewer rate cuts on the horizon, relief on borrowing costs will be restrained. For renters and prospective homebuyers, this could further heighten the challenges they face due to persistently high property prices.
On the brighter side, the strength of the Australian labour market and overall business resilience provide some comfort. However, a cautious fiscal approach from the RBA indicates that patience will remain a necessary virtue for households hoping for imminent policy easing.
ANZ, NAB Focus on Economic Data
Both ANZ and NAB have indicated that further labour market data and inflation reports will play a vital role in determining future policy decisions. While May 2025 serves as the pivotal timeline for interest rate cuts, changes in demand or stalling inflation cooling could prompt further revisions.
Adam Boyton’s comments encapsulate the broader economic environment businesses and households face in the coming months. While inflation creates notable pressure on cost-of-living expenses, economic resilience and employment opportunities are helping cushion the impact.
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