Commonwealth Bank changes RBA interest rate cut call in huge win for mortgage holders
Commonwealth Bank expects the Reserve Bank of Australia (RBA) will deliver back-to-back interest rate cuts at its July and August meetings following Wednesday's falling inflation figures. Financial traders have also upped their bets for a July rate cut, which would bring much-needed relief for millions of mortgage holders.
Headline inflation eased to 2.1 per cent over the year to May, down from 2.4 per cent the previous month. Trimmed mean inflation was down to 2.4 per cent in May, from 2.8 per cent in April, which was the lowest rate since November 2021.
Commonwealth Bank senior economist Belinda Allen said the bank now expected a 0.25 per cent cut at the July meeting, followed by another 0.25 per cent cut in August. The bank previously expected the next cut to come in August.
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“Based on the data flow, we now expect the RBA to cut the cash rate in July," she said.
"Today’s monthly CPI print capped off a flow of data that should provide comfort to the RBA that a swifter return of the cash rate to neutral is both manageable and needed.
“The decision to cut the cash rate in July will still be a close one. We expect there to be a discussion of both leaving the cash rate on hold and cutting by 25 basis points.”
This would bring the cash rate down to 3.35 per cent.
Allen said this would bring the cash rate back to a more neutral rate and allow the RBA to pause and assess whether further rate cuts were needed. She said the risks sits with a further rate cut later in 2025 or early 2026.
Two 0.25 per cent interest rate cuts could reduce monthly repayments on a $600,000 mortgage with 25 years remaining by $178 a month.
'Lock in' July rate cut
Financial traders have upped their bets on a July interest rate cut, pricing in an 88 per cent chance of a cut next month.
Economist and Yahoo Finance contributor Stephen Koukoulas said the inflation data had opened the door for a supersized 0.50 per cent cut in July.
"Inflation is below the midpoint of the target range, it's falling rapidly, it's at risk of falling below the bottom of the target band and monetary policy is still restrictive despite those two rate cuts," he said.
KPMG chief economist Brendan Rynne said a 0.25 per cent point cut was “warranted given the continued weakness in the private sector of the Australian economy”.
“On top of that, any increase in demand that comes about from a further drop in interest rates is unlikely to stoke the inflation genie in an unhelpful way,” he said.
