Commonwealth Bank of Australia has brought forward its rate cut expectations, now pencilling in reductions in both August and September, as moderating inflation and softening wage growth increase the likelihood of earlier monetary easing by the Reserve Bank of Australia.
- “We continue to expect two further rate cuts this year, but now favour August and September,” CBA economists said in a note. “The catalyst for the shift has been the RBA’s change in tone on inflation.”
CBA has retained its base case of four cuts for the current easing cycle—first outlined in October 2023—which would take the cash rate from 4.35% to 3.35%, a level the bank says is “closer to neutral.”
However, the bank warned that downside risks are building.
- “Inflation has moderated relatively quickly and wages growth is slowing, even as the unemployment rate holds steady at 4.1%,” the note said, highlighting a sluggish consumer recovery and heightened global uncertainty as key headwinds.
While CBA still sees August as the more likely starting point for renewed easing, it did not rule out a July cut.
- “The risk lies with additional and quicker easing,” the bank noted. “But the RBA would have to see hard data for this to materialise.”
CBA also flagged the possibility of the RBA having to move the cash rate into “slightly stimulatory territory” should global conditions worsen more materially.
The dates ahead to be aware of.
This article was written by Eamonn Sheridan at www.forexlive.com.
