Commonwealth Bank boss pours cold water on supersized $181 RBA interest rate cut
The boss of Australia’s biggest bank has poured cold water on expectations for the Reserve Bank of Australia (RBA) to gift mortgage holders with a supersized cut next week. The central bank will announce its decision on interest rates on Tuesday, with a cut largely anticipated despite stronger-than-expected jobs numbers.
The unemployment rate remained steady at 4.1 per cent for April, but 89,000 more Australians were in jobs than the month before. Economists, including those from the Commonwealth Bank (CBA), only expected around a 20,000 increase.
But CBA senior economist Belinda Allen said the major bank still expects the RBA will cut rates at its May meeting, despite the "surprising result".
"We stick with our call for the RBA to deliver a 25 basis point rate cut at the May Board meeting as the unemployment rate and wages growth have printed broadly as the RBA expected," she said.
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Are you a homeowner waiting for the RBA to cut interest rates? Contact tamika.seeto@yahooinc.com
CBA chief executive Matt Comyn has also predicted the RBA will cut interest rates next week, with rate cuts on the cards for later in the year.
While the central bank is expected to acknowledge the volatile global environment, Comyn said its main focus would be the drop in inflation to fall within its 2 to 3 per cent target band.
This comes a day after the bank - Australia's largest - announced cash profits rose 6 per cent to $2.6 billion in the March quarter.
“We certainly still think it’s likely that they will reduce by 25 basis points,” Comyn said.
“I think it’s incredibly unlikely it’s more than that, even though the market seems to be pricing in some possibility of that.”
Markets were expecting about three cuts over the year, but traders have now eased their bets slightly following today's jobs numbers.
Comyn said three cuts seemed “about right”, but it would depend on the economic data.
NAB is expecting a jumbo 50 basis point cut next week, while Westpac and ANZ think it will be the standard 25 basis point cut.
Economist Stephen Koukoulas has called for a 50 basis point cut next week and said the RBA needed to act to rebalance the economy.
"If it delivers a 25 basis point interest rate cut, it will be only a baby step towards getting interest rates to a neutral level," he wrote for Yahoo Finance.
