CBA makes call no Aussie wants to hear

The Commonwealth Bank of Australia has made a devastating prediction that millions of Aussies will not want to hear.

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 on Tuesday 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 housing‑related components,” Mr Aird wrote.

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

CBA has made a call no homeowner wants to hear. Picture NCA NewsWire / Emma Brasier.

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, coul start in November this year, several months later than anticipated.

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

RBA to ‘increase interest rates three times’

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 before the end of the 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 on Friday 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 on 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.

Veteran economist Warren Hogan. Picture: Supplied

“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 … We just need to now get up to the (cash rate) level that other countries are, at 5 per cent.”

Three 25 basis point rate hikes would bring the official cash rate to 5.1 per cent – its highest level since 2008.

If a 75 basis point increase in interest rates was passed on in full, the move would add a further $374 to monthly repayments for an owner-occupier with a $750,000 variable rate mortgage, according to analysis by Compare the Market.

Homeowners are being slugged with higher repayments. Picture: Jonathan Ng

“Two or three rate hikes by the end of the year puts us back on the RBA’s ‘narrow path’ because we’re definitely wandering off it right now,” Mr Hogan said.

“The key thing for the long term stability of the economy and most importantly ensuring that inflation gets down and we get rid of this cost of living crisis, is that we have rates set at the right level for the economy.”

HSBC chief economist Paul Bloxham also agreed that the recent acceleration in inflation meant that further tightening could not be taken off the table.

“There is a risk that they will actually have to lift their policy rate even further,” he said, adding that the central bank could also push out its timeline for when inflation would ease below 3 per cent.

Economists Warren Hogan and Paul Bloxham warned that the stage three tax cuts would add to inflation. Picture: Supplied

“It’s clear that in the short run, the RBA is going to have to upgrade their inflation forecasts, but the question will be whether they can still be getting inflation back to the target band over the same horizon as they previously forecast.”

Staff forecasts released by the RBA in February showed inflation returning to the bank’s 2 to 3 per cent target band in the six months to December 2025.

The prospect of further rate hikes would also hinge on federal government policy, including spending decisions made in the May budget and the stage three tax cuts.

“It’s pretty clear that we need fiscal policy to be helping to continue to put downward pressure on inflation,” Mr Bloxham said.

“If it ends up stimulating the economy, it could add more to inflation and make the RBA’s job even harder.”

Mr Hogan also remarked that the tax cuts posed an inflationary threat, remarking that their July 1 commencement meant they would come at the “worst possible time” for the Australian economy.

“A $23 billion boost to household incomes when you’re trying to get spending down and when you’re operating in the economy through its capacity – it really is the last thing you need,” he added.

— With NCA NewsWire and Frank Chung

Originally published as CBA makes call no Aussie wants to hear