CBA's huge interest rate call for millions of mortgage holders

CBA economist Gareth Aird said mortgage holders could still get an interest rate cut this year but there were risks. (Source: AAP/CBA)

Commonwealth Bank (CBA) believes mortgage holders could still get interest rate relief before Christmas. Australia’s biggest home loan lender said it is sticking with its November rate cut call, despite the board ruling out a “near-term” cut.

The bank's head of Australian economics Gareth Aird said today’s RBA board minutes indicated that the cash rate would “likely stay on hold for an extended period”, or until at least February 2025, should economic data evolve in line with the central bank’s forecasts.

However, Aird believes inflation, which rose to 3.8 per cent annually in the June quarter, will moderate faster than the RBA’s current forecast and unemployment will move up a little quicker.

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“Overall we believe that if the economic data over the near term evolves in line with the RBA’s latest forecasts the cash rate will be left on hold until Q1 25,” Aird said.

“But we continue to side with market pricing and think it more likely than not we will see an interest rate cut by the end of the year. That might look odd given the Governor’s recent comments and today’s minutes.”

RBA governor Michele Bullock ruled out a “near-term” cut in interest rates, which she defined as the next six months.

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The minutes noted that “based on the information available at the time of the meeting, it was unlikely that the cash rate target would be reduced in the short term” but noted “it was not possible to either rule in or rule out future changes in the cash rate target”.

Aird said there were risks to a November interest rate cut being achieved.

“The risk to our call is that even if our near-term forecasts for inflation and unemployment come to fruition, the Board does not feel comfortable commencing an easing cycle until it has seen more economic data,” he said.

The RBA expects inflation will return to the 2 to 3 per cent target in late 2025 and approach the midpoint in 2026. The unemployment rate is expected to keep slowly rising until early 2025.

What do Westpac, ANZ and NAB forecast?

CBA is the only bank of the Big Four predicting a 2024 interest rate cut.

Westpac and ANZ have pushed back the first interest rate cut to February 2025, while NAB has pencilled in May 2025 for interest rate relief.

CBA, ANZ and NAB have recently cut their term deposit rates, which some experts say is a sign the RBA could be cutting interest rates soon.

Repayments have skyrocketed by $1,562 per month on the average $600,000 loan since the Reserve Bank of Australia (RBA) started hiking rates in May 2022.

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