Expert’s huge call on Aussie interest rates

The Commonwealth Bank has pushed its prediction of a rate cut to December, still months ahead of the wider consensus.

Polling of 34 keen Australian economic minds shows 15 of the experts believe a February cut to the cash rate is in the offing.

None of the 34 polled by Finder think the RBA will follow the US Federal Reserve and cut this month, while five of the 34 predict a cut before Christmas.

A third of the experts believe there is a 50-50 chance of recession next year.

“Australia – like many other countries – has bubbles in stock, housing and credit markets and investment is low, so I cannot see how it can continue,” University of Western Australia macroeconomist Jakob Madsen said.

He said the Australian economy was “severely” out of equilibrium, exposing the chance of a recession.

Inflation is too high for the RBA to allow a cut to interest rates, the experts said, despite signs the economy is cooling based on recent growth and unemployment data.

“The RBA has noted that the data doesn’t justify easing policy this year. Specifically inflation remains uncomfortably high,” IFM Investors chief economist Alex Joiner said.

“We expect that it will take further time for the RBA to be confident in inflation and once it has that it will look to support the economy and labour market.”

Outlier CommBank has pushed its forecast for a rate cut from November to December 2024.

The bank’s chief economist Stephen Halmarick was included in the poll by Finder, tipping the RBA will hold at 4.35 per cent this month, as inflation heads towards the 2-3 per cent target and unemployment rises.

Commonwealth Bank still thinks there will be a 25 basis point cut this year, but on Thursday pushed the prediction back a month.

Central to this change is a forecast for the consumer price index to “materially” come down from 3.5 per cent to 2.7 per cent, driven by government power bill rebates.

So Australia’s biggest company, and bank, is betting on a cut to the cash rate in December, with a total of 125 basis points to be slashed by the end of 2025, to bring the cash rate down to 3.1 per cent.

But the prospect of cuts to the cash rate throws up concerns about a recession.

The Finder survey notes one-third of the economists think there’s a 50-50 chance of a recession next year.

A labour market slow down, global economic uncertainty and weak consumer confidence, coupled with the current high interest rates, make University of Sydney associate professor Stella Huangfu think there is a chance of a recession.

Bendigo Bank chief economist David Robertson thinks recovering household income, moderating inflation and then rate cuts in 2025 will help us avoid a hard-landing actual recession.

The RBA board will make its latest decision on the cash rate on Tuesday.