CBA, Westpac push interest rate cut expectations to November
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The news: The Commonwealth Bank and Westpac have both pushed expectations of an interest rate cut by the Reserve Bank from September to November, on the back of higher-than-expected inflation figures for the March quarter.
The numbers: The Commonwealth Bank said it expected only one 25 basis point (bp) interest rate cut in 2024, compared with a 75bp cut previously forecast.
Likewise, Westpac expected the RBA to continue to be cautious about services inflation and domestic pressures "for a few months yet", and anticipated the first rate cut to occur after its November meeting, rather than September as previously expected.
Inflation increased 1% in the March quarter, a higher quarterly rise than the December quarter at 0.6%. This was also above the 0.8% largely expected by economists.
The context: The Commonwealth Bank said it expected rates to be on hold over the next six months given the economy was still contracting on a per capital basis, inflation was forecast to fall further, and the labour market was anticipated to loosen. It flagged that "incredibly strong" net overseas immigration has put upward pressure on some components of the consumer price index measure, making the RBA's task of returning inflation to target more difficult.
Westpac noted that inflation continued to unwind in the March quarter "but not quite as much as expected." The bank noted that it did not expect any changes to the RBA's messaging about "not ruling anything in or out" for another few months.
The sources: Westpac research, CBA research
