The Commonwealth Bank has predicted that the Reserve Bank of Australia (RBA) has reached the end of its monetary policy tightening cycle and stands to deliver 75 basis points (bps) of interest rate cuts in the second half of 2024.
But in contrast, NAB has pencilled in one final hike by the RBA in February next year, with the cash rate expected to peak at 4.60 per cent and remain at this level until late 2024.
Explaining CBA’s latest forecasts, chief economist Stephen Halmarick suggested that the RBA has a strong chance of achieving its desired “narrow path” next year as higher rates have the desired effect of slowing the local economy without pushing it into recession.
“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,” he noted.
“Despite these obstacles, the Australian economy remains in relatively good shape.”
Mr Halmarick acknowledged that the local economy is losing momentum, driven by a slowdown in household spending. Australia’s GDP grew by 0.2 per cent in Q3 2023, down from 0.4 per cent growth in Q2 2023.
But the CBA chief economist noted that inflation is also decelerating, with further deceleration tipped over 2024. The monthly consumer price index (CPI) indicator rose by 4.9 per cent in the 12 months to October, down from 5.6 per cent in September.
“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,” Mr Halmarick said.
“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.”
NAB economists said that, based on the outlook for weak activity growth, an ongoing easing in labour market pressures and continued easing in inflation, “we still believe the cash rate is at, or near, its peak for this cycle”.
“We continue to pencil in a hike in February for a cash rate peak of 4.6 per cent. However, in the near term the data (particularly for inflation) will be important,” they said.
“Equally, the RBA will be increasingly concerned about the pressure on the consumer and how that will affect future growth and employment.”
NAB predicted that trimmed-mean inflation will ease to 3.25 per cent by the end of 2024 and to 2.8 per cent, or within the upper half of the RBA’s target range, by the end of 2025.
“That said, inflation numbers are likely to remain volatile as policy impacts and subsidies unwind,” the NAB economists said.
“Nonetheless, this profile suggests a fairly orderly moderation in inflationary pressure and while inflation is expected to track well above the top of the RBA’s target for an extended period, it returns to target without a major downturn in activity or increase in the unemployment rate.”
According to NAB, the cash rate will end 2024 at 4.35 per cent and then fall to 3.35 per cent by the end of 2025.
Meanwhile, CBA has forecast 75 bps of cuts in the second half of 2025, on top of the 75 bps of cuts predicted for 2024, which would take the cash rate to 2.85 per cent.
