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Although the US Federal Reserve made its first interest rate cut in four years last week, Australian mortgage holders shouldn't get too excited the RBA will follow.
The RBA has long held the line that Australia is in a different position than other developed economies where interest rates have been falling for some months.
Interest rates in other countries have generally been higher than Australia's 4.35% cash rate which has remained in place since November 2023 in a bid to tame inflation.
Since then, the RBA has repeatedly said it will not consider cutting the rate until it sees strong evidence inflation falls back to its target range of 2-3%.
Inflation bogeyman
According to the latest monthly Consumer Price Index (CPI) indicator, the annualised inflation rate came in at 3.5% in the 12 months to July 2024.
However, that figure is widely expected to plunge within the RBA's target range when new CPI data is released on Wednesday - a day after the RBA's cash rate decision.
Commonwealth Bank of Australia economists estimate the August inflation rate will fall to 2.7%, thanks largely to the effect of government energy rebates, general disinflation, and softer wages growth.
However this is a red herring; the RBA has long made it clear temporary cost-of-living rebates are not a major focus when it evaluates underlying price pressures in the economy.
It's likely RBA governor Michele Bullock will reiterate this when she fronts the post-meeting media conference on Tuesday afternoon.
What economists and markets will be hanging on is Ms Bullock's tone which many are expecting will be slightly less hawkish given the generally softer data than the RBA's modelling.
It will also be interesting to see whether Ms Bullock holds firm that another interest rate hike remains on the table.
So when will interest rates fall?
Until last week, CBA economists had been forecasting the first cut in the cash rate would come in November but have now changed their expectation to December.
They cited steady employment figures and the RBA's reluctance to lower rates.
But CBA's pre-Christmas rate cut forecast is still ahead of the other big four banks who don't see any movement until 2025.
Here are the latest cash rate forecasts of the big four banks:
| Bank | First cut expected | Number of cuts forecast | Rate outcome by end 2025 |
|---|---|---|---|
| Commonwealth Bank | December 2024 | 5 | 3.10% |
| Westpac | February 2025 | 4 | 3.35% |
| NAB | May 2025 | 5 | 3.10% |
| ANZ | February 2025 | 3 | 3.60% |
The RBA board is due to deliver its cash rate call at 2:30pm on Tuesday, with its November announcement scheduled for Melbourne Cup Day on 5 November.
The board's final meeting for the year will be 9-10 December.
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