Relief for homeowners as the odds of interest rate cuts this year just got stronger with a major influencer expected to drop as soon as next month.
The latest CBA Global Economics report said the interest rate cut cycle was just getting started internationally as softer growth expectations emerge.
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Homeowners have copped 13 rate hikes in this current cycle, by global economic conditions could see falls shortly.
“We expect the US FOMC to start an interest rate cutting cycle in September and extend interest rate cuts further in 2025,” the report by CBA economics specialists Joseph Capurso,
Kristina Clifton and Carol Kong.
The shift is important as Australian interest rates are influenced by the moves made by US FOMC, though it doesn’t always follow immediately.
The US Federal Open Market Committee determines monetary policy, with its next meeting set for September 17 to 18 – one week before the Reserve Bank of Australia’s September 23 to 24 meeting chaired by governor Michele Bullock.
Commonwealth Bank economist Gareth Aird earlier expected the first 25bp rate cut from the RBA in November 2024, taking the cash rate target to 4.15 per cent.
Commonwealth Bank head of Australian economics Gareth Aird expects RBA to put in its first cut in November.
Midweek the ASX 30 Day Interbank Cash Rate Futures September 2024 pointed to a 50 per cent expectation of an interest rate decrease to 4.1 per cent at the next RBA board meeting.
The CBA Global Economics report said “high interest rates are working” to dampen demand.
“Even in the US – the most resilient of the major economies – housing activity has slumped, unemployment is rising, and growth in consumer spending has softened.”
Globally labour markets have weakened modestly, it said, except in Canada and New Zealand where the deterioration has been sharper.
“Growth in wages has eased in some economies. Slower growth in wages gives central banks confidence of sustainably reaching their inflation targets, a catalyst for cuts to policy interest rates.”
The report said “it is remarkable that interest rates will be cut despite little damage to labour markets”.
Property prices have defied rate hikes and continue to rise along with rents.
“Fiscal (budget) policy is not being tightened despite high government debt levels. While high debt raises risks in the medium term, it provides a good environment for domestic demand to pick up when interest rates are cut.”
The CBA report said “we now expect global economic growth to be soft at 2.6 per cent in 2024, followed by an acceleration to 2.8 per cent in 2025”.
The report flagged that “a return of President Trump to power in the US could also exacerbate global trade tensions and raise prices in 2025”.
“Our assessment is the potential for inflation to stay elevated will discourage central banks from large cuts to their policy interest rates unless recession looms.”
English (US) · 