Household spending slowdown adds pressure on RBA to ease cash rate next month
The Commonwealth Bank of Australia (CBA) has reaffirmed its expectation that the Reserve Bank of Australia (RBA) will cut the official cash rate at its next meeting.
This outlook follows a sharp 7.7% decline in discretionary spending, as revealed by CBA’s Household Spending Insights Index. Combined with slowing inflation, the reduction in discretionary spending has reinforced CBA’s position that the RBA has room to ease monetary policy.
CBA’s stance is no longer isolated among the major banks. ANZ recently revised its own forecast, predicting a February rate cut after November inflation data came in below expectations.
CBA chief economist Stephen Halmarick (pictured above) has lowered his core inflation projection for the December quarter to 0.5%, and if confirmed, this would bring six-month annualised underlying inflation to 2.6% — just above the midpoint of the RBA’s target range of 2-3%.
Halmarick expects the RBA to reduce rates by 100 basis points over the course of 2025, a more aggressive approach than market forecasts of approximately 60 basis points.
While ANZ and CBA agree on a February cut, Westpac and NAB maintain that the RBA will wait until May to act. The big four banks also diverge on the total number of cuts expected this year. ANZ is the most cautious, forecasting two cuts, while CBA and Westpac anticipate four. NAB predicts as many as five reductions this year.
If the cash rate is cut five times, borrowers with a $600,000 mortgage over 25 years could see monthly repayments drop by up to $441. With only two cuts, the same loan holder would save $182 per month.
The prospect of rate cuts could exert further pressure on the Australian dollar, which is trading near five-year lows against the US dollar. However, Halmarick argued that the Australian dollar’s recent weakness is primarily due to US dollar strength.
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