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The ASX's RBA Target Rate Tracker, published at the end of every trading day, indicates financial markets are now expecting four cuts to the official cash rate from February to August 2025.
It's the tracker's first forecast of multiple rate cuts since the Reserve Bank of Australia began lifting the cash rate in May 2022.
If the cuts were to be a uniform 25 basis points, it would mean the official cash rate could drop from 4.35% to 3.35% by this time next year.
A full percentage point fall in interest rates would see a homeowner with an average variable mortgage of $641,000 save more than $5,000 a year in mortgage repayments - or around $420 a month.
See also: Mortgage Repayment Calculator
The cuts would ease pressure on existing borrowers and may save some from having to sell their properties, as RBA governor Michele Bullock warned may be necessary for homeowners struggling with prolonged higher interest rates.
However, property industry analysts have suggested the first rate cut could also spark a flurry of activity on the property market, driving record prices even higher and making it even more difficult for first home buyers to get a foothold in the market.
It would also be bad news for deposit holders - who have only recently seen returns besting inflation - on top of the recent downward slide in term deposit rates.
All eyes on the US Fed
The ASX's cash rate forecast is based on the widely expected cuts to US interest rates, with the US Federal Reserve almost unanimously tipped to make its first cut to its benchmark rate when it meets on Wednesday night, Australian time.
If markets are correct, it will be the first cut in the US benchmark rate in four years.
It seems the question now is not whether rates will fall but by how much.
US economists are evenly split on whether the first rate cut will be a 25 or a heftier 50-basis point drop to kick off the cutting cycle.
US Federal Reserve chairman Jerome Powell is due to make an announcement on the US benchmark rate decision at 4am Thursday, Australian time.
Well before the meeting, Mr Powell had already declared the long-awaited US rate cuts are about to begin.
The US will then join many other central banks in cutting rates, including the UK, China, Canada, the EU and other developed economies.
What about Australia?
It leads to the inevitable question: what will it mean for Australia?
The immediate effect of a US rate cut is likely to be a surge in the value of the Australian dollar.
This is because interest rate cuts in the US will make holding money there less attractive.
Global markets will look to a currency where interest rates are higher, such as Australia's, giving them larger returns on their cash.
The more the Australian dollar climbs due to demand, the cheaper imports that are priced in US dollars become.
This, in turn, can help ease price inflation in Australia, playing a part in bringing down overall inflation which could set the scene for a cash rate cut here.
CBA tips target range inflation in August
Adding to the spectre of rate cuts in Australia is Wednesday's announcement from CommBank economists that they expect August's monthly CPI inflation figure will see a massive plunge to fall within the RBA's target range.
RBA governor Michele Bullock has said, ad infinitum, there will be no cut to Australia's cash rate until inflation is within its target of 2-3%.
CommBank economists are tipping the August figure to dip to 2.7% - marking a significant 0.8% monthly fall in the annual headline inflation rate.
The main contributors, according to CBA analysts, are energy rebates dragging down energy prices in August, with Queensland's 50-cent public transport fares and cost of living measures, and general disinflation across the CPI basket also playing a part.
On the other side of the coin, experts have also noted that these relief measures put more cash into the pockets of households, enabling them to spend in other areas.
This also adds to the stage three income tax cuts, which so far have not translated into higher spending, with bracket creep still outweighing the benefits of the tax cuts.
The August monthly CPI indicator is due to be released on Wednesday next week, a day after the Reserve Bank board makes its cash rate announcement on Tuesday.
So, when will the RBA drop rates?
Of course, one monthly CPI figure in the target range is not enough for the Reserve Bank board to make a cut to the cash rate, even in the climate of a US rate drop.
Ms Bullock has largely ruled out a rate cut in 2024 although some analysts, including CommBank's, are still holding out for a November rate cut.
Economists from other three big banks don't see a fall to Australia's cash rate until 2025.
The ASX's RBA Target Rate Tracker, which uses the forecast yields of 30-day cash rate futures, expects the first interest rate cut will be in February 2025, with three more cuts to follow by August.
This would mean four rate cuts delivered over the RBA's five scheduled board meetings within this timeframe.
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