Mark Bouris gives his forecast for interest rates and why good news is coming for homeowners

Financial expert and Australian businessman Mark Bouris has predicted that interest rates will finally fall in an encouraging message to home borrowers.

The chairman of the Yellow Brick Road home loans said if record high interest rates are seen to have a negative impact on the economy, rate cuts could be on the horizon for Australians struggling to pay their mortgages.

“The real big question today isn’t whether they’re going to raise rates again. It’s how long they’re going to keep these rates as they are,” he told Sunrise on Friday.

‘It’s extraordinary. We have a four percent increase since a year and a half ago. How long can this country sustain that without falling into recession?

“If we see these rate hikes have an effect on the economy in terms of growth, then last week we saw retail sales hit an all-time low.

‘They look very poor. If that feeds into the rest of the economy and other areas like the cost of coffee and all those things, we’re going to see rate reductions.

For example, Westpac has been predicting interest rate cuts in the latter part of 2024 for some time. For me, Bill Evans is the country’s leading chief economist.

“He’s with Westpac, he’s just retired. He and his team were very bold at one point and said seven rate cuts in 2024. I think they’ll move away from that.

“I think sometime in late 2024, more realistically, there will be two or three rate cuts.”

His forecast comes just days after the Reserve Bank of Australia paused rates for a second month right after inflation fell.

Outgoing Governor Philip Lowe’s penultimate board meeting chose to pause cash rates at an 11-year high of 4.1 percent, suggesting interest rate hikes could stop even if inflation remains higher than previously forecast.

“The higher interest rates are and will continue to create a more sustainable balance between supply and demand in the economy,” he said.

In light of this and the uncertainty about the economic outlook, the board decided again this month to keep interest rates stable.

“This gives more time to assess the impact of interest rate hikes so far and the economic outlook.”

ANZ, the only Big Four bank to correctly predict an August break, said rates were likely to remain unchanged, but warned rate cuts were still a long way off.

The Commonwealth Bank, Australia’s largest mortgage lender, has now put an end to rate hikes.

Tuesday’s decision to leave rates unchanged marked the first back-to-back breaks since March and April 2022, before the hike cycle began.

While this was the third pause in 2023 so far, interest rates have risen 12-fold since May 2022, marking the most aggressive pace of monetary tightening since 1989.

A borrower with an average $600,000 mortgage saw their annual repayments increase by $17,796 in just 15 months, with the banks increasing their variable rates even in months when the RBA did not change.

But the rate hikes have lowered inflation, which fell to 6 percent in June, down from 7 percent in the March quarter and a 32-year high of 7.8 percent at the end of 2022.

The Reserve Bank now expects headline inflation, also known as the consumer price index, to return to the top of its two to three percent target by the end of 2025, rather than mid-2025 as predicted in May.

“The central forecast is that CPI inflation will continue to fall, hovering around 3.25% by the end of 2024 and returning to the target range of 2-3% by the end of 2025,” said Dr Lowe.

The most dramatic level of monetary tightening in a generation has fueled fears of a recession, a repeat of what happened in 1991, after interest rates hit 18 percent in late 1989.

AMP chief economist Shane Oliver said a 2024 recession remains a 50:50 risk, arguing that a 13th rate hike in just over a year would make an economic contraction more likely.

“The decision to hold makes sense given the faster-than-expected fall in inflation and the now high risk of a recession,” he said.

In a sign that the rate hikes are biting, building permits fell 7.7 percent in June and 18 percent over the year, exacerbating housing supply tightness at a time of rapid immigration.

Deloitte Access Economics partner Stephen Smith said another rate increase would exacerbate the housing crisis without addressing global delivery delays.

“In fact, they are likely to exacerbate the situation by delaying a housing recovery,” he said.

Retail sales fell 0.8 percent in June, but department store sales fell 5 percent in a month. Data from the Australian Bureau of Statistics points to an economic slowdown.

Three of Australia’s Big Four banks – Commonwealth, Westpac and NAB – had mistakenly expected a rate hike on Tuesday, but the futures market had seen a hike as only a 14 percent chance.

Only ANZ had predicted a lull among the largest banks, arguing that the retail trade decline was similar to the 2008 global financial crisis and the early 1990s recession.

ANZ’s head of Australia’s economy, Adam Boyton, said the RBA is now likely to leave rates unchanged.

“Our expectation remains that the bank will have an extended break,” he said.

As for the risks surrounding that view, we think rate cuts are a long way off. If the Bank does move in the short term, or even in the first half of 2024, higher interest rates are much more likely than rate cuts.”