VIEW: CBA Pushes Out First Rate Cut To November

CBA has revised its RBA cash rate forecast for this year. It now expects the rate cut to be in November rather than September and as a result there is likely to be only 25bp of easing in 2024 rather than the 75bp CBA previously expected. The shift was driven by last week’s stronger-than-expected Q1 CPI print.

• “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.”
• “We now see a more elongated and conservative easing cycle than previously expected.Our base case sees the cash rate gradually cut from November 2024 to reach 3.10% at end-2025 (a level we believe is just above neutral).”
• “The RBA Board may restore its hiking bias at the upcoming May Board meeting.But on balance we expect an ‘on hold’ decision to be accompanied by a neutral bias, in line with the policy decision and Statement from the March Board meeting.”
• “The RBA has been successful in bringing down discretionary inflation. But dropping non-discretionary inflation is proving to be a more difficult challenge.”
• “We believe that incredibly strong population growth, driven by net overseas immigration, has put upward pressure on some important components of the CPI basket; most notably the housing-related components.As a result, demand is stronger and so inflation is falling less quickly than otherwise.”