CBA predicts 6 interest rate cuts by mid-2025

Commonwealth Bank (CBA) economists are predicting the Reserve Bank (RBA) will make six interest rate cuts by mid-2025, with cuts needed this year to stop unemployment from rising too high.

Australia’s biggest bank expects the central bank will start cutting interest rates in September this year, reducing the cash rate by 0.75 per cent in total by the end of 2024.

This means borrowers could receive three rate cuts by this Christmas - in September, November and December - provided their bank passes along the reductions.

CBA is predicting three interest rate cuts by Christmas, with more to come in the first half of next year. (Source: AAP)

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“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 H1 2025,” CBA head of Australia economics Gareth Aird said.

The unemployment rate climbed to 4.1 per cent in January, data released yesterday revealed. That’s the highest it has been in two years.

Aird noted RBA rate cuts would be required this year to prevent the unemployment rate from rising much above 4.5 per cent.

CBA expects the unemployment rate will rise to 4.5 per cent by the end of 2024, which is higher than the RBA’s current forecast of 4.3 per cent.

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CBA had previously predicted three rate cuts by the end of 2024 and another three rate cuts in the second half of 2025. This update brings the second trio of rate cuts forward to the first half of next year.

The prediction would see the RBA cash rate fall from 4.35 per cent to 3.6 per cent by December, and down to 2.85 per cent by mid-2025.

Interest rates have skyrocketed from a record low of 0.10 per cent since May 2022, adding $1,349 more per month to repayments on a $600,000 mortgage.

Warning from CBA CEO

While CBA economists predict the RBA will start cutting rates from September this year, CEO Matt Comyn said there was a possibility they wouldn’t come until 2025.

Speaking to the Australian Financial Review this week, Comyn said there was “certainly a possibility that could be delayed” until the new year, after US inflation data came in stronger than forecast in January at 3.1 per cent.

“[Rate cuts] will be data-driven and, clearly, inflation coming down should be the highest priority,” Comyn said.

“There is some uncertainty about exactly when rates will come down and what the pace of the reductions might be.”

In Australia, inflation fell to 4.1 per cent over the 12 months to the December quarter. CBA economists expect underlying inflation will fall to the top of the RBA’s 2-3 per cent target band in the second quarter of this year.

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