Yahoo Finance Commonwealth Bank's major interest rate cut backtrack: 'Runway is shortening'
The Reserve Bank of Australia did not consider a rate cut this month, and now economists are reacting to the central bank's stance.
There are signs another major bank is losing hope in an interest rate cut for 2024. The Reserve Bank of Australia (RBA) governor said one wasn't even considered in the June meeting when the board decided to hold the cash rate at 4.35 per cent again.
There was a time this year when the big four banks all agreed there would be a 2024 cut. But the dates started to push back and ANZ broke away from the pack, pushing its prediction to 2025.
Commonwealth Bank of Australia (CBA), like Westpac and NAB, have calculated the first interest rate drop to come in November.
But the latest update from the bank's head of Australian economics, Gareth Aird, made room for that to shift backward.
"We retain our base case that the next move in the cash rate is down. And we have November pencilled in for the first rate cut," Aird said.
"But given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the runway is shortening between now and November.
"The risk to our call is increasingly moving towards a later day for an easing cycle."
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Like Michele Bullock, Aird said quarterly CPI numbers that will drop in August were "incredibly important" to determine the central bank's position on rate cuts.
If that number is 0.8-0.9 per cent, the leading economist said he was confident the RBA would leave the cash rate on hold again.
"But a core print stronger than our forecast would test the RBA's resolve to not tighten policy further," he said.
Bullock said the war on inflation was far from over, explaining the complexity of bringing cost pressures down without tipping the economy into a recession.
“We still think we're on the narrow path but it does appear to be getting a bit narrower," she said.
"We need a lot to go our way if we're going to bring inflation back down to the 2 per cent target range.”
Aird noted that "uncertainty" was a key theme in the board's monetary policy statement, with the word cropping up eight times in June compared to the previous month.
Yahoo Finance contributor and entrepreneur Mark Bouris said he wasn't seeing any "solid indications" that interest rates will be reduced in the near future.
"So I'd say right now, given what the RBA rhetoric was on today's announcement, is that interest rates will stay where they are for a fairly long time," he said.
On the flip side, there are economists, like Judo Bank's chief economic adviser Warren Hogan, who still believe borrowers are in for further interest rate rises (two, in fact, in August and November).
Bullock did roll out out the classic “not ruling anything in and not ruling anything out” line in her post-decision press conference.
But she also dished out a silver lining.
“I wouldn't say that the case for a rate rise is increasing,” the governor said.
The Commonwealth Bank economist closed his statement echoing the central bank's sentiments.
"We very much agree with the Board's elevated use of the word uncertain," Aird said.
When do the major banks think interest rates will come down?
Aird's statement proves these predictions are subject to change as new revelations are made about the health of the economy.
But currently, here are the projections for the cash rate over the next 18 months:
ANZ
First cut: February 2025
Number of cuts before December 2025: 3
Final 2025 cash rate predicted: 3.60 per cent
CBA, NAB and Westpac
First cut: February 2025
Number of cuts before December 2025: 3
Final 2025 cash rate predicted: 3.60 per cent
Markets are fully priced for a rate cut by May 2025.
The next RBA meeting will be held on August 5, with a decision announced the following day.