Commonwealth Bank Adjusts Rate Cut Timeline Amidst Labor Market Trends

7

The financial community widely expects the RBA to keep the cash rate stable during this session, a forecast deemed straightforward in light of the recent federal budget. However, CBA's latest insights suggest the easing cycle—initially anticipated to alleviate strained mortgage holders—will be postponed due to prevailing uncertainties surrounding inflation forecasts.

Gareth Aird, CBA's head of Australian economics, indicated that recent labor market data shows little motivation for the RBA to alter its policy direction. According to Aird, the current state of the labor market, characterized by a "loosening" at essential levels, supports a prediction that the RBA will maintain the cash rate unchanged.

"Both trend unemployment and underemployment are experiencing a gradual upward trajectory," Aird stated in the latest CBA Economics update. "Work hours are declining, and job advertisements show a discernible downward trend."

Highlighting these labor market dynamics, Aird elaborated, "Our expectation for a more significant loosening in the labor market, which varies from the RBA’s forecasts, is a principal reason why we foresee the commencement of an easing cycle in late 2024. Yet, given the persistent challenges with underlying inflation and the shrinking period to November, the likelihood of a delayed start to the easing cycle is increasing."

The economic slowdown was further highlighted by the first-quarter GDP data, which grew by a mere 0.1%. Over six months, the annualized GDP growth pace reduced to 0.8%. The RBA's current forecast places the average unemployment rate at 4.0% over the second quarter, consistent with recent predictions.

Aird noted, "Despite the bank’s non-accelerating inflation rate of unemployment estimated at 4.3%, there remains significant uncertainty regarding these projections." Additionally, RBA Governor Michelle Bullock opined that the federal government’s $300 energy bill rebate is unlikely to either significantly mitigate or exacerbate inflation levels.

Aird supported this view, referencing earlier CBA economic predictions that the rebates might subtract two-thirds of a percentage point from the third quarter’s Consumer Price Index (CPI). "While this impact is noteworthy, the RBA is more focused on the core inflation dynamics, which excludes the effects of energy rebates," he remarked.

"Our perspective is that the mechanical reduction in headline inflation for Q3, due to rebates, will potentially lower short-term inflation expectations for households and businesses, helping stabilize wage expectations over 2024 and 2025," Aird added.

The RBA's accompanying statement to its board decision is expected to maintain a neutral stance. Despite the fluctuating dynamics and economic signals, Aird emphasized that predicting the exact timing for the commencement of an easing cycle remains inherently uncertain.

Published:Saturday, 15th Jun 2024
Source: Paige Estritori

Share this news item:

Finance News

Clear

ASIC Releases Updated Legislation for Financial Advice

16 Sep 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) has introduced a new, consolidated legislative instrument that relates to financial advice. This update follows through on ASIC's May announcement regarding the remake of three existing advice-related instruments. - read more

Commonwealth Bank Challenges RBA's Card Fee Reform

12 Sep 2025: Paige Estritori

Australia’s leading financial institution, the Commonwealth Bank of Australia, has openly criticised the Reserve Bank of Australia (RBA) for its calculations related to a proposed reduction in debit and credit card transaction fees. The RBA suggested that the reform would save Australian businesses $1.2 billion annually and benefit the majority of companies, a claim that the Commonwealth Bank strongly disputes. - read more

Ongoing Consumer Spending Surge Threatens Future Interest Rate Cuts

11 Sep 2025: Paige Estritori

Amid a period of robust consumer spending, Australia's mortgage holders may face limited future interest-rate cuts. The Commonwealth Bank has observed Australians increasing their spending over the last six months, spurred by rising incomes, a robust job market, and previously lowered interest rates. - read more

CSLR Funding Concerns as Special Levy Decision Remains Pending

11 Sep 2025: Paige Estritori

The Compensation Scheme of Last Resort (CSLR) recently highlighted potential delays in compensation payments due to insufficient special levy funds. In July, the CSLR's proposed FY2025–26 levy plan allocated $67.29 million for financial advisers, surpassing the $20 million limit set for the subsector. This shortfall of $47.29 million prompted the Treasury to initiate a consultation in August to determine funding solutions for the excess levy. - read more

Retiree Surge to Drive Demand for Financial Advisers in Australia

10 Sep 2025: Paige Estritori

A recent study by Adviser Ratings, as outlined in the 2025 Australian Financial Advice Landscape Report, indicates that the number of financial advisers in Australia will need to increase significantly. From the present count of 15,500 advisers, the industry is expected to require more than 50,000 over the next thirty years to cater to a growing retiree population. - read more

Click for more Finance News