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The Reserve Bank could start giving mortgage holders a relief by cutting interest rates from September, with more relief to continue in 2025, Australia’s biggest lender predicts.
Commonwealth Bank expects the RBA will reduce the cash rate by 75 basis point – taking the official rate from 4.35 per cent to 3.6 per cent – by the end of 2024, and keep cutting next year.
It comes as the unemployment rate climbed to 4.1 per cent in January – the highest it’s reached in two years.
CBA’s head of Australian economics, Gareth Aird, said he’s is now expecting the country’s monetary policy will be lowered in September, November and December this year.
“The monetary policy transmission channel via the mortgage market is much more direct in Australia and we believe rate cuts will be required in H2 24 to stop the unemployment rate from rising above 4.5 per cent,” he said.
“We expect the rate of underlying inflation in Australia to be at the top of the RBA’s target band on a six monthly annualised basis in Q2 24.
“Our base case sees the RBA commence an easing cycle in September 2024 -75 basis points of rate cuts by end-2024 and a further 75 basis points of cuts in (the first half of 202).”
Mr Aird is also predicting three more cuts in the first half of 2025.
Mr Aird said the decision to cut interest rates in the second half of 2024 would be a direct result of how well the global market continues to bounce back.
“The Australian economy has slowed much more quickly than the US economy over the recent past,” Mr Aird said.
“Weakness in the Australian consumer lies at the heart of the disparity in economic outcomes.
“Real household income has been hit much harder in Australia, consumer spending is much softer and the labour market is loosening more quickly.”
The ambitious call comes after RBA boss Michele Bullock said inflation woes would continue to be “persistent” over the coming months when she appeared before senate estimates on Thursday.
“Our view, and it’s reflected in our forecasts, is that inflation is being persistent. But we are seeing it come down and back in the band in 2025,” she said.
In its revised inflation forecast released last week, the RBA indicated that inflation could drop to 3.3 per cent by June 2024, lower than the predicted 3.9 per cent.
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