VIEW: CBA Sees Risk Budget Pushes First Rate Cut Further Out

CBA sees the additional $9.5bn of spending from policy changes for FY25 as making the RBA’s narrow path even narrower. It says that the stimulatory budget has now increased the risk that the first rate cut could be delayed from its November 2024 forecast.

• “We had flagged that fiscal policy was one of the risks to our base case that monetary policy easing would start in November this year and that the neutral cash rate of close to 3% would be reached by the end of 2025. The risk is now more real that the first interest rate cut could be delayed and that the neutral cash rate is higher than we currently estimate due to the expansionary fiscal setting and the high level of investment in the economy.”
• “In our view, deficits in the range of -0.8% to -1.5% of GDP over coming years are larger than would be ideal in an economy that is likely to see ongoing large investment requirements from the private sector and the Federal and state governments.”
• “For 2024/25 the fiscal impulse (ie. the change in the Budget deficit between years) compared to 2023/24 is expansionary, due to the move from the surplus to the deficit. While measured headline inflation falls due to the well-crafted energy rebate and rental assistance, the impulse to the economy is positive.”