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The Commonwealth Bank of Australia (CBA) has predicted the Reserve Bank of Australia (RBA) will start slashing interest rates again, and it's sooner than expected.
CBA’s head of Australian economics Gareth Aird said the bank believes the RBA will start cutting rates mid next year.
This comes after the RBA started lifting the cash rate for the first time in 12 years in May.
Also read: RBA hikes rates again: Prepare to pay more
The official interest rate was sitting at a record low 0.1 per cent before the May and June meetings when it was hiked and is now sitting at 0.85 per cent.
“There has been a clear shift in tone and stance from the Board and we now expect the RBA to front load rate hikes,” Aird said.
Aird said he expects a further 0.50 per cent hike in July, followed by a 0.25 per cent hike in August, September and November.
This would bring the official interest rate to 2.10 per cent by the end of the year.
However, Aird said financial conditions would continue to tighten and lead the central bank to begin slashing rates once again.
“With the RBA now expected to take the cash rate to a contractionary setting, we have pencilled in rate cuts for the second half of 2023,” he said.
Aird said that the revised forecast would have knock-on effects on the Australian economy and CBA is predicting GDP will grow more slowly.
“A more aggressive tightening cycle, coupled with higher expected near term inflation has implications for our economic forecasts,” AIrd said.
“We make a large downward revision to our GDP forecast to look for growth of 2.3 per cent year on year at Q4 22 and 2.2 per cent year on year at Q4 23.”
Additionally, Aird said CBA is also predicting property prices will fall 15 per cent by the end of next year.
The RBA also made this prediction, saying higher interest rates will impact the property market.