The Commonwealth Bank is predicting a huge fall in interest rates next year and again in 2025.
The major bank believes the cash rate will be lowered by 0.75 per cent by the Reserve Bank of Australia (RBA) over 12 months, starting in September 2024.
It means interest rates could fall from 4.35 per cent to 3.6 per cent by the end of 2024.
CBA is predicting interest rates will then be lowered by another 0.75 per cent in 2025, as the inflation rate comes back into the RBA’s 2 to 3 per cent target range.
If the forecast is correct, interest rates would be sitting at 2.85 per cent by the end of 2025.
The report is suggesting the cash rate would drop slightly earlier than what the RBA is predicting.
”Looking ahead, 2024 will have more than its fair share of risks and challenges, particularly geopolitical risks as well as the United States presidential election,” Commonwealth Bank’s Chief Economist Stephen Halmarick said.
“Despite these obstacles, the Australian economy remains in relatively good shape.”
He said while the Australian economy is losing momentum, led by a slowdown in household spending, inflation was also decelerating – albeit at a slower pace than other nations.
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“The good news is that the pace of global inflation clearly begun decelerating around mid-2023 and we expect further deceleration in 2024 however markets will also focus on the balance between returning inflation to 2 per cent targets, without doing too much damage to labour markets,” he said.
“As 2023 draws to a close, markets have shifted to our view that the global monetary policy tightening cycle is at an end and that 2024 will see interest rate cuts from some of the major central banks, especially the US Federal Reserve and the RBA.
“CBA is forecasting the annual rate of inflation back at 3 per cent at the end of 2024, well ahead of the RBA’s current forecast and closer to the Commonwealth government’s latest forecast.
“We also expect the RBA to begin a modest monetary policy easing cycle from September 2024 onwards.”
The RBA kept interest rates on hold in December, sparing borrowers of a sixth interest rate rise in 2023.
On average Australian households have paid more than $24,000 extra in interest as a result of 13 interest rate rises since May 2022.
