The Commonwealth Bank is now warning Australian borrowers to prepare for a possible rise in interest rates.
Australia’s largest property lender has changed its forecast to have just one rate cut in 2024 instead of three as it recently forecast.
But CBA Australian economics chief Gareth Aird said a rate hike could not be ruled out in the coming months, given underlying measures of inflation are still at elevated levels.
Another rate hike in 2024 would take the cash rate to 4.6 percent, which would be the highest level since November 2011, and would add to the most aggressive hikes since 1989.
“The short-term risk lies in a rise in interest rates,” he said.
“But we expect the RBA to remain on hold for the next six months as the economy is still contracting in per capita terms, inflation is forecast to fall further and the labor market is forecast to relax.”
The Commonwealth Bank is now warning Australian borrowers to prepare for a possible rise in interest rates.
The Commonwealth Bank has adjusted its forecast for the Reserve Bank of Australia to cut rates in November instead of September.
It now only has one rate cut for 2024, compared to a recent prediction of three cuts this year.
In 2024 and 2025, the CBA now predicts five rate cuts instead of six, which would see the Reserve Bank cash rate fall back to 3.1 per cent, rather than 2.85 per cent.
“We now see a longer and more conservative easing cycle than previously expected,” Aird said.
The 30-day interbank futures market has the Reserve Bank keeping the cash rate at a 12-year high of 4.35 per cent in 2024.
Bond market yields, or the annual amount investors are paid to hold government debt, have also risen since Wednesday last week, suggesting financial markets are bracing for another possible rally in Australia.
Interest rates were repriced after the Australian Bureau of Statistics revealed headline inflation in the March quarter rose 3.6 per cent, higher than market expectations for a 3.5 per cent rise. hundred.
But underlying measures of inflation, excluding large price increases and decreases, were particularly alarming.
Gareth Aird, head of Australian economics at CBA, a rate hike cannot be ruled out as underlying inflation indicators remain elevated.
The weighted median, which shows price increases in the middle of the range, caused inflation to rise 4.4 percent.
The trimmed mean, based on an average without volatile goods such as gasoline and vegetables, showed prices rose 4 percent.
This would alarm the RBA considering that, in February, it expected this measure to be relaxed to 3.6 percent by June 2024.
The unemployment rate of 3.8 per cent is also well below the Reserve Bank’s forecast that it will rise to 4.2 per cent by mid-year, fueling concerns about wages driving up costs.
But Aird said unemployment was still likely to rise as higher interest rates led to spending cuts.
“Discretionary inflation is likely to fall further as Australian households continue to tighten their belts,” he said.
‘This, in turn, will cause the labor market to relax and wage pressures to dissipate.
“As wage growth slows, downward pressure will be placed on cost inflation in the service sector, where wage growth is generally the dominant driver of price increases (note that The dynamic is not applicable to rentals, which are considered a service)”.
A record 548,800 migrants, on a net basis, moved to Australia in the year to September, which Aird said had fueled inflationary pressures by boosting demand for goods and services.
“The increase in Australia’s population over the last eighteen months has been extraordinary,” he said.
‘The surge in population growth has boosted aggregate demand in the economy.
‘In turn, this has somewhat masked the per capita decline in real consumer spending.
“The most important thing from a monetary policy perspective is that there are implications for inflation.”
