New blow for homeowners as Commonwealth Bank rules out any interest rate cuts this year

The Commonwealth Bank now says rate cuts before Christmas are unlikely unless unemployment rises faster than forecast.

Australia’s largest mortgage lender has indicated the Reserve Bank will not cut rates until February, after minutes from the RBA’s August meeting were released, which stressed there will be no rate cut until 2024.

Gareth Aird, head of Australian economics at Commonwealth Bank, said borrowers would only be eligible for financial help, starting in November, if inflation fell faster than expected as unemployment rose to levels higher than officially forecast.

“The August Governing Council minutes show that if economic data develop in line with the RBA’s latest forecasts, the cash rate is likely to remain unchanged for an extended period (i.e. until at least February 2025),” he said.

RBA Governor Michele Bullock said two weeks ago that financial markets were wrong when they predicted rate cuts in November and December.

But minutes of the August 5-6 meeting, released on Tuesday, highlighted that financial markets were dreaming if they thought a rate cut would come this year.

However, members noted that the forecasts were uncertain, the report said.

Importantly, they were also based on a conditional assumption, derived from market expectations, that the cash rate would be cut multiple times over the coming year, starting later in 2024.

‘Based on what they knew at the time of the meeting, members agreed that monetary policy needed to be tighter than the implied path to bring inflation back to the target level in a sustainable manner within a reasonable time frame.’

The Commonwealth Bank said a rate cut before the end of 2024 is still possible, pointing to the fourth quarter or Q4.

“The government will almost certainly need to ensure that inflation falls faster than the RBA’s latest forecasts and that unemployment rises faster in order to cut the cash rate in 2024,” Aird said.

‘In our base scenario, we expect inflation to decline more quickly than in the RBA’s central scenario and unemployment to rise somewhat faster. We therefore maintain our call for the RBA to initiate an easing cycle in the fourth quarter of 2024.’

Governor Michele Bullock said two weeks ago that financial markets were wrong when they predicted rate cuts in November and December

Australia’s unemployment rate rose to 4.2 percent in July, the highest level in two years. Last month, 23,900 people lost their jobs, in another sign that the Reserve Bank’s aggressive interest rates are slowing the economy.

The Reserve Bank published new forecasts earlier this month predicting unemployment would rise to 4.3 percent by the end of 2024.

According to the Commonwealth Bank, interest rates could be cut this year if the unemployment rate rises.

Underlying inflation should also fall below the RBA’s 2-3 percent target in early 2025, rather than late 2025.

“We find it difficult to reconcile a message from the Council emphasising a high level of uncertainty surrounding the economic outlook with what we would categorise as an opaque outlook for the cash rate,” Mr Aird said.

The 30-day interbank futures market continues to predict rate cuts in November and December.

The Commonwealth Bank also cut its term deposit rate by 50 basis points last week, a sign that banks have given up competing for savers’ favour.

NAB and ANZ have also cut their term deposit rates.