The Commonwealth Bank expects the Reserve Bank of Australia to cut the official cash rate at its upcoming meeting in February 2025.
The forecast comes after the CBA’s household spending insights index recorded a 7.7 per cent decline in discretionary spending, supporting the view that Australian mortgage holders are struggling financially and that a rate cut was desperately needed to get the money flowing again. keep business flowing.
The index showed increases in spending on essential categories such as utilities, insurance and transport, but these were offset by a sharp decline in spending on household goods, which fell by 8.3 percent.
Combined with falling inflation, the slump in spending reinforced the CBA’s view that the Reserve Bank of Australia will see sufficient reasons to cut rates at its next meeting.
It is no longer a dissent among the big four banks. ANZ recently pushed back its rate cut forecast to February, following lower-than-expected inflation figures for November.
As a result, CBA’s chief economist Stephen Halmarick has revised down his core inflation forecast for the December quarter to 0.5 percent.
If that is reflected in the figures released at the end of this month, it would put the underlying six-month annualized inflation rate around the middle of the RBA’s 2.6 percent range.
He predicts the central bank will cut rates by 100 basis points in 2025, beating market expectations of about 60 basis points of rate cuts.
The Commonwealth Bank expects the Reserve Bank of Australia to announce the official spot rate at its upcoming meeting in February 2025
The banks have mixed forecasts on the number of rate cuts expected in 2025: ANZ is the most conservative, predicting two cuts, while CBA and Westpac both expect four and NAB expects five cuts.
If there were five interest rate cuts, a borrower with a loan of €600,000 and 25 years to go could see their monthly repayments fall by up to €441.
With just two rate cuts, the same borrower would save $182 per month on their payments.
Rate cuts could further weigh on the Australian dollar, which has fallen to a near five-year low against its US counterpart in recent days.
However, Mr Halmarick said Australian interest rates had a limited impact on the exchange rate, and the Australian dollar’s deterioration was more due to the greenback’s strength.
“Over the course of the year, the dollar has averaged around 61 or 62 cents, so close to where it is now, but we have said the risk to that forecast is a drop to $60.”
Canstar data insights director Sally Tindall said they must “prepare for every eventuality.”
‘The big question is how many rate cuts the RBA will ultimately hand out. “If you have a mortgage, be prepared for every eventuality,” she said.
‘A rate cut in February is looking increasingly likely, but with just over five weeks to go until the next board meeting and the RBA firmly focused on incoming data, this could change.’
Consumer spending fell 1.8 percent in December after rising in November, with financially stressed households adjusting their purchasing behavior to prioritize sales periods.
CBA chief economist Stephen Halmarick said moderate spending could mean an early rate cut
Shoppers have clearly brought forward holiday spending to take advantage of the sales activity, said Stephen Halmarick, chief economist at the CBA.
“If those sales periods are not there, it actually disappears very quickly,” he told AAP.
“Overall, consumer spending remains quite subdued.”
The bank’s index extracts spending insights from the payment data of approximately seven million private customers.