Commonwealth Bank Predicts Two More Interest Rate Cuts in 2023
The Commonwealth Bank (CBA) has tempered expectations for immediate interest rate cuts by the Reserve Bank of Australia (RBA) following the release of inflation data that surpassed market predictions. Despite recent hopes for a July rate decrease, inflation figures presented have reignited caution.
In April, Australia’s annual inflation rate held at 2.4%, slightly above the anticipated 2.3%. The underlying inflation, which the RBA closely monitors, rose to 2.8%, marking an increase from March’s 2.6% and also exceeding forecasts. CBA economist Stephen Wu noted that while inflation remains "reasonably benign," these numbers prompt the RBA to adopt a cautious and data-driven approach towards any cuts, particularly in the absence of significant global economic shifts.
Wu stated, "As of now, there is no compelling reason for the RBA to implement a 25 basis point cut during the July meeting." He outlined CBA’s expectation for two additional cuts later in 2023, with potential adjustments in August and September—this timeline has been expedited from November.
An interesting possibility for borrowers is the chance of an additional rate cut this year, contingent on forthcoming data and international developments. Wu emphasized that upcoming GDP figures and initial readings on consumer spending would be crucial, alongside labour market statistics.
The Australian Bureau of Statistics showed that food and non-alcoholic beverages contributed 3.1% to the annual inflation change, with housing and recreation also playing significant roles at 2.2% and 3.6%, respectively. Betashares chief economist David Bassanese remarked that while the inflation results were "mildly disappointing," they did not warrant an immediate rate cut from the RBA.
Bassanese indicated that, barring any economic emergencies, the RBA is likely to delay cuts until August, especially with the crucial Consumer Price Index (CPI) report set for release in late July.
KPMG’s senior economist Dr Michael Malakellis echoed the sentiment of caution, acknowledging that while existing data suggests persistent inflation, it also provides the RBA with more leeway to make cuts if facing economic downturns. He believes that the RBA will approach rate adjustments hesitantly and will rely heavily on forthcoming quarterly CPI reports.
Looking ahead, various financial institutions have their predictions aligned with these narratives. NAB anticipates three cuts in July, August, and November, while Westpac and ANZ predict delays or staggered cuts extending into 2026.
Recent data indicates that all four major banks have fully incorporated May’s rate cut into their variable interest rates, with CBA, NAB, and ANZ on track for adjustments at the end of May, and Westpac following suit in early June.
In conclusion, while the Commonwealth Bank foresees potential rate cuts in the latter part of 2023, immediate changes are unlikely as the RBA continues to navigate a complex inflation environment. Borrowers are advised to prepare for a gradual pace in any rate adjustments, with key economic indicators set to play a pivotal role in shaping the future monetary policy.
