Majors tweak rate forecasts

The Reserve Bank of Australia (RBA) decided to hold the official cash rate at 4.1 per cent for the second consecutive month during its monetary policy meeting on 1 August, prompting the major banks to update their cash rate forecasts.

The Commonwealth Bank of Australia (CBA) announced it has shifted its base case and now expects the cash rate to remain on hold at 4.1 per cent for an extended period, however, the major bank acknowledged there is still risk of another rate hike.

CBA senior economist Belinda Allen stated: “While the RBA retains a tightening bias, we expect the hurdle to another rate is high.

“It would take an upside surprise to the economic data from here, namely on prices and/or wages, for the RBA to shift its assessment of the outlook.”

Ms Allen further stated CBA continues to expect the RBA to begin an easing cycle in 1Q24 with a total of 100-bp cuts next year to bring to cash rate to 3.1 per cent by the end of 2024.

National Australia Bank (NAB) group chief economist Alan Oster confirmed the major bank has lowered its terminal cash rate forecast from 4.6 per cent to 4.35 per cent.

Mr Oster added the major bank expects the next rate hike to occur during the November meeting following the release of the third quarter Consumer Price Index (CPI) data.

On when the RBA will begin to cut rates, Mr Oster stated: “With rates now expected to peak slightly lower than our previous forecasts, we have pushed back our expectation for the beginning of rate cuts to August 2024.”

Westpac chief economist Bill Evans said the board’s decision to not raise rates for a second month despite “clear evidence of a very tight labour market” indicated that the RBA is waiting to see the impact of tight labour markets on inflation.

“We do not expect a data flow over the next month that would trigger that hike in September, although the monthly inflation indicator always represents a risk,” Mr Evans said.

“Thereafter the weak outlook for activity and the slowing in inflation is likely to preclude any further need for higher rates.”

Mr Evans further stated Westpac considers the next move is now likely to be “the first cut in the cycle” forecast for the September quarter of 2024.

ANZ head of Australian economics Adam Boyton stated the bank maintains its expectation of an extended pause of 4.1 per cent.

Mr Boyton added the major bank saw nothing in the RBA’s decision or following state to push them of the view of an extended pause as the board examines how the 400-bp rise will affect the economy.

[RELATED: Cash rate remains at 4.1% in August]