Toss a coin for rate cuts in February

The big four bank is holding on to predictions of a rate cut in February following Australia’s anaemic growth figures released on Wednesday.

Commonwealth Bank has repeated its predictions that the Reserve Bank will cut rates in February, in good news for struggling households.

The bank is the only one of the big four to predict rate cuts in February, with NAB, ANZ, Westpac tipping a rate cut in May.

Commonwealth Bank senior economist Belinda Allen said Australia’s GDP figures were undershooting the RBA’s expectations of growth of 1.5 per cent for the 12 months to December 2024.

CBA is doubling down on its prediction of a rate cut in February. Picture: NewsWire / Nicholas Eagar

“This seems optimistic and we believe these forecasts are too strong. For this reason, together with a lower‑than‑expected (fourth) quarter CPI print (we currently expect a trimmed mean of 0.6 per cent, risk of 0.5 per cent), softer wages growth and a lift in unemployment, a rate cut in February remains our base case,” she said.

Ms Allen said the cash markets were predicting an even chance of a rate cut in February. Last week, markets had priced in just a 25 per cent chance of a cut prior to Australia’s GDP figures being released.

Wednesday’s official GDP figures showed Australia was barely growing, up just 0.3 per cent largely thanks to government infrastructure projects and energy rebates. For the 12 months to September 30, the economy grew by 0.8 per cent.

On a per capita basis, Australia’s economy contracted 0.3 per cent, as the amount of economic activity per person fell. Household spending was flat in the September quarter following a fall of 0.3 per cent in June.

Stage 3 tax cuts did boost household incomes, but the response was muted by consumer spending. Instead, the savings rate lifted to 3.2 per cent in Q3 24 compared with an upwardly revised 2.4 per cent in the June quarter.

Ms Allen said in a note that she expected the central bank board to hold the cash rate when it meets on Tuesday, December 10, but to watch for the post-meeting statement.

CBA says growth has fallen below the RBA’s expectations. Picture: NewsWire / Sarah Marshall

“In terms of the statement we expect the board to continue with the line ‘the board is not ruling anything in or out’, but the minutes could have a more dovish tilt,” she said.

Australia Institute chief economist Greg Jericho said the GDP figures, especially the weak household spending, showed the immediate need for a rate cut.

“Households are really not spending in a way that grows employment. It’s time for the Reserve Bank to cut rates,” he said.