Chart of the week: Loan demand influenced by cash rate moves and volatility
New loan commitments continue to rise.
This week’s chart of the week comes from our 2025 Q1 update on Australian Banks by Nathan Zaia.
Modest loan growth expected
New home loan commitments continue to rise, supported by population growth and rising house prices. Market expectations of more rate cuts are likely to be positive for credit growth and could be material if trade wars lead to lower economic growth than would have otherwise occurred.
We expect refinancing activity to be broadly flat in 2025. In a steady or falling rate environment, borrowers are less inclined to look for a better deal compared with an environment where rates are rising. When banks compete for a modest pool of new loans and fight to retain existing customers, competition for lending is usually higher.
Rate cuts could be swift if trade wars slow Australia’s economic growth
The RBA held the cash rate steady at 4.1% in April 2024, after kicking off the rate cutting cycle off with a 0.25% cut in February.
While inflation had been falling closer to target, Trump tariffs are the latest source of economic uncertainty which will impact timing and magnitude of cuts. Money markets currently expect cuts of some 115 basis points by December 2025, much higher than the 70 basis points expected before US tariffs were announced.
