Westpac’s Bill Evans has shown other economists how to get a headline for decades but this is probably he’s best work with his prediction that we could see seven interest rate cuts by 2025. If Bill is right, the big take away is this: don’t think about fixing your mortgage rate.
Bill is the chief economist at Westpac and sees two more rate rises in coming months. taking the cash rate from 3.85% to 4.1%, and then a pause in June. He thinks the RBA’s Dr Phil Lowe and his board are worried about inflation, given what he said at his appearances in front of Senate Estimates and the House Economics Committee, where he said the bank would take a steady approach to rate increases.
This follows a bigger-than-expected jump in the December quarter inflation reading, where the Consumer Price Index increased by 7.2% while underlying inflation jumped by 6.9% year-on-year.
The Westpac economics team thinks the June mortgage cliff, when hundreds of thousands of mortgagees will go off fixed rate home loans to variable, will result in a major squeeze not only on households’ budgets and their spending, it will choke off growth in the economy. I think Dr Lowe will be gambling that he could toss us into recession, which won’t add to his reputation after his controversial (and wrong) call that rates would be on hold until 2024!
Nine rate rises since May last year has shown how way off that call was but after wreaking that interest rate damage, Bill Evans says to expect seven rate cuts over 2024 and 2025. This would reduce home loan repayments on a $600,000 loan by $643 a month or $7,716 a year.
That will help the economy rebound and would set up the stock market for a big bounceback, with tech and small cap stocks likely to be the big gainers after copping it since rate rises have been the main game plan of central banks.
So this is a story of pain before the gain, but let’s hope the rate rises from Dr Phil don’t take us into a recession, which would be bad for jobs and business profits and the RBA boss’s fan base!
By the way, we get the January monthly inflation reading on Wednesday. If it remains high, Bill’s calls on future rate rises followed by big cuts could even look more believable.
To the stock market today, and it’s tipped to open 38 points higher with Wall Street positive overnight.
And for those who like a stock tip, my TV show looks at Santos, Pilbara Minerals a lithium play, and then an interesting one run by a cool dude, Dicker Data, which has had a rough year but it’s track record is impressive and the analysts like it.
