Bank’s big call on rates

CBA says next move up

One of Australia’s biggest banks has made a devastating new prediction for Aussie homeowners.

After a series of RBA meetings that have resulted in the official cash rate being put on hold, Commonwealth Bank has warned the tide may be starting to turn in the favour of further rate hikes.

That’s not the only bad news if you have a mortgage.

CBA’s head of Australian economics, Gareth Aird, said that not only were further rate rises now a “near-term risk”, but any cuts will also come slower than previously expected. Most of the expected cuts will likely be pushed back to 2025, he said.

He explained that strong population growth, driven by net overseas immigration, has put pressure on the Consumer Price Index.

“Most notably the housingrelated components,” Mr Aird wrote.

“As a result, demand is stronger and so inflation is falling less quickly than otherwise.”

He explained this means interest rates need to stay higher for longer to help bring inflation back down.

Rates were predicted to start dropping in September, but that has now been pushed back to November.

“The near-term risk sits with an interest rate hike,” Mr Aird warned. “But we expect the RBA to be on hold over the next six months.”

He predicted that “an easing cycle”, where the RBA begins to drop interest rates, could start in November this year, several months later than anticipated.

The RBA’s next policy meeting will be held on May 7.

This comes days after a top forecaster issued a dire interest rate warning, predicting that the Reserve Bank will be forced to hike three times this year.

Judo Bank chief economic adviser Warren Hogan — who was the most accurate forecaster in 2023, correctly predicting the RBA would raise the cash rate five times to 4.35 per cent — told The Australian Financial Review that he now saw rates reaching 5.1 per cent in 2024.

His prediction comes on the back of higher-than-expected inflation data released last Wednesday, which caused most economists to push back their timeline for a predicted rate cut by the RBA to late 2024 or early 2025.

Mr Hogan, however, has ditched his prediction for a hold until early 2025 then a rate cut, and now believes the RBA will instead raise the cash rate by 0.25 percentage points at its August, September and November meetings.

“Everything points to the fact that 4.35 per cent isn’t the right level for the cash rate,” the veteran economist told The Australian Financial Review.

“The RBA’s strategy this cycle doesn’t seem to be working. They were hoping we could do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages …”