Australia's 2025 Latest Interest Rate Predictions and Their Impacts
- kyle36034
- Feb 1
- 5 min read
Interest Rate Forecasts from Australia’s Big Four Banks
As Australia moves into 2025, the country’s economic landscape is shifting, and interest rate predictions are at the center of discussions. The Big Four banks—Commonwealth Bank of Australia (CBA), Westpac, National Australia Bank (NAB), and ANZ—have revised their forecasts, anticipating rate cuts due to easing inflation and changing economic conditions.
Commonwealth Bank of Australia (CBA)
CBA anticipates that the Reserve Bank of Australia (RBA) will implement its first rate cut in February 2025, followed by additional reductions throughout the year, bringing the cash rate down to 3.35% by December 2025. This outlook is based on recent inflation data indicating a sharper-than-expected decline, suggesting that inflationary pressures are easing more rapidly than anticipated.
Westpac
Westpac has revised its initial forecast and now expects the first rate cut to occur in February 2025, aligning with CBA’s projection. The bank foresees a total reduction of 100 basis points over the year, resulting in a cash rate of 3.35% by year-end. This adjustment follows better-than-expected inflation figures, indicating a faster moderation in inflation.
National Australia Bank (NAB)
NAB now expects the first rate cut in February 2025, with a gradual reduction in the cash rate over time. Unlike other major banks predicting a cash rate of 3.35% by the end of 2025, NAB projects that the rate will fall more cautiously, reaching 3.10% by February 2026. NAB’s Chief Economist, Alan Oster, has emphasized that while the February rate cut seems likely, the pace of subsequent cuts will be slower than initially expected.
ANZ
ANZ now anticipates two rate cuts in 2025, with the first in February and the second in August. Unlike CBA and Westpac, ANZ expects a total reduction of 50 basis points, bringing the cash rate to 3.85% by December 2025 instead of 3.35%. ANZ’s Chief Economist, Adam Boyton, has stated that these cuts are intended to cautiously dial back the restrictiveness of monetary policy rather than signal an aggressive rate-cutting cycle.
Supporting Evidence for Rate Cuts
The primary justification for these interest rate reductions stems from Australia’s latest inflation data. The trimmed mean inflation rate fell to 3.2% year-on-year in December 2024, the lowest level since March 2021. The RBA’s forecast of 3.4% inflation was exceeded, demonstrating that inflation is cooling faster than expected.
Market expectations have significantly shifted, with more than a 75% probability that the RBA will cut rates by 25 basis points in its February 2025 meeting.
Potential Impacts on Victoria’s Property Market
Victoria’s property market is experiencing a phase of uncertainty, influenced by various economic factors, including interest rates, tax policies, and investor confidence. The anticipated rate cuts could have significant implications for the housing sector.
1. Increased Buyer Demand
Lower interest rates generally lead to increased borrowing capacity, making mortgages more affordable for homebuyers. If the RBA proceeds with its expected cuts, it could trigger renewed demand in the Victorian property market, particularly from first-time buyers and investors.
2. Potential Market Recovery
Analysts predict that Melbourne’s housing market could see 3.5% price growth in 2025 and 6% in 2026, pushing the median house price near $1 million. If interest rates decline as forecasted, affordability may improve, driving increased property transactions.
3. Challenges Due to High State Debt and Taxes
Despite more favorable borrowing conditions, Victoria’s high state debt and increased property taxes continue to weigh on investor sentiment. Increased land taxes and stamp duties have led to a downturn in investor activity, potentially limiting the impact of lower interest rates.
4. Declining Auction Volumes
Melbourne, traditionally Australia’s auction capital, has seen a sharp decline in auction volumes, with Sydney overtaking it in auction activity. Presently, only 14% of Victorian homeowners believe it is the right time to sell, compared to 22% in New South Wales. Lower interest rates could improve seller confidence, reversing this trend.
5. Shift Towards Owner-Occupiers
Victoria’s property market is shifting towards owner-occupiers, as more investment properties are sold, and renters transition into homeownership. Falling mortgage rates could make buying more attractive, further boosting demand for homes.
6. Rental Market Pressures
A decline in investor participation has contributed to a constrained rental property supply, leading to rising rents despite weak property sales. Lower interest rates could encourage investors to return to the market, potentially easing rental market pressures.
Australia’s Big Four banks have updated their forecasts, anticipating rate cuts beginning in February 2025, driven by rapidly cooling inflation. However, while CBA and Westpac expect a cash rate of 3.35% by the end of 2025, NAB projects a slower decline to 3.10% by early 2026, and ANZ anticipates a more moderate reduction to 3.85% by December 2025. If realized, these reductions could rejuvenate Victoria’s property market by boosting buyer confidence, increasing sales activity, and supporting gradual price appreciation. However, challenges such as high property taxes, investor uncertainty, and market fluctuations will continue to influence the sector’s trajectory. For property buyers, sellers, and investors, staying informed on economic developments and RBA decisions remains crucial in navigating the evolving real estate landscape in Victoria.
References
1. ANZ Institutional Report – Interest Rate Forecast
https://www.anz.com/institutional/insights/articles/2025-01/anz-shifts-aus-rate-call-to-feb
2. NAB Official Forecast – Rate Cuts and Economic Outlook
https://news.nab.com.au/news/nab-forecasts-february-rate-cut-cutting-phase-to-be-gradual
3. News.com.au – Economic Case for February Rate Cut
4. CoreLogic – 2025 Housing Market Trends
https://www.corelogic.com.au/news-research/news/2025/whatsshaking-up-the-housing-market-in-2025
5. Property Update – Melbourne Property Investment Insights
https://propertyupdate.com.au/property-investment-melbourne/
Disclaimer
This article is for informational purposes only and does not constitute financial, legal, or investment advice. The forecasts and analyses are based on current market trends and expert insights but are subject to change. Readers should conduct their own research and consult financial advisors or real estate professionals before making any property or investment decisions.
