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Commonwealth Bank pushes back interest rate cut prediction in devastating warning to Aussie borrowers

The Commonwealth Bank was the only of the big four still forecasting a cut in September, but now borrowers are being warned to 'plan for a hike'.

Commonwealth Bank of Australia (CBA) economists have pushed back their predictions for when the Reserve Bank of Australia (RBA) will reduce the cash rate. It was the only remaining of the big four banks anticipating a rate cut in September, but inflation isn’t falling fast enough and now interest rate cuts aren’t expected until November or even 2025.

A leading economic forecaster issued a dire warning last week that the RBA could be forced to up the cash rate three times this year. But CBA’s head of Australian economics, Gareth Aird, said Australia's biggest bank predicts it will stay on hold.

“The near‑term risk sits with an interest rate hike. But we expect the RBA to be on hold over the next six months given the economy is still contracting on a per capita basis, inflation is forecast to fall further, and the labour market is anticipated to loosen,” Aird said.

People are seen walking past a Commonwealth Bank of Australia branch.
Commonwealth Bank economists are no longer predicting a September interest rate cut. (Source: Getty Images) (Asanka Ratnayake via Getty Images)

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“Our base case now sees the RBA commence an easing cycle in November 2024 (from September 2024 previously).”

The central bank is set to meet on May 6 to determine the cash rate. CBA, NAB, ANZ and Westpac all predict it will be held at 4.35 per cent.

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Tuesday’s change puts CommBank inline with the other big four banks' 2024 forecasts after Westpac adjusted its prediction last week off the back of hotter-than-expected quarterly inflation data.

The CBA had predicted three 0.25 percentage point cuts, but is now only factoring in one.

  • CBA: One cut in 2024 with the first in November

  • Westpac: One cut in 2024 with the first in November

  • NAB: One cut in 2024 in November

  • ANZ: One cut in 2024 in the fourth quarter

Aird noted the housing crisis was putting pressure on Australia’s attack on inflation.

“We believe that incredibly strong population growth, driven by net overseas immigration, has put upward pressure on some important components of the Consumer Price Index (CPI) basket; most notably the housing‑related components. As a result, demand is stronger and so inflation is falling less quickly than otherwise,” Aird wrote.

“The upshot is the monetary policy will need to stay at a restrictive setting for longer to bring inflation back towards the mid‑point of the RBA’s target band.”

CommBank, Westpac and NAB predict the cash rate will drop 1 per cent in 2025, over four 0.25 basis point cuts.

ANZ is not as optimistic, forecasting just two cuts of 0.25 percentage points.

Rate City research director Sally Tindall told Yahoo Finance the path to lower interest rates remained unclear.

“What these cash rate forecasts tell us is that no one, not even the RBA knows what its next move is,” Tindall said.

“While we’ve made excellent progress bringing down inflation, there’s every chance this next leg of the battle could be the hardest.

“You only have to look at the monthly CPI indicator to see signs of stickiness, with the data showing three months of stagnation, followed by a small rise to 3.5 per cent.”

Reserve Bank Governor Michele Bullock softened her language when justifying a cash rate hold following their last meeting in March, but maintained the central bank “cannot rule anything in or out”.

Tindall said there would be signs from Bullock in the May meeting if an interest rate rise was being considered.

“The RBA is not going to revert back to hiking the cash rate without plenty of data on its side, and plenty of warning to borrowers. However, if you’ve got a mortgage, it’s prudent to plan for a hike just to be on the safe side,” she said.

There are banks making out-of-cycle interest rate cuts to remain competitive, with mortgage holders urged to shop around.

Even if the RBA does cut interest rates, experts have warned the major banks may not pass on any cash rate cuts in full to mortgage holders.