News

Commonwealth Bank brings forward interest rate rise forecast to 2022

25 June 2021

The Commonwealth Bank has this week joined a couple of the other major banks and brought forward their expectations of an official cash rate rise.

The CBA have gone as far as to forecast rates to rise before the end of next year off the back off better-than-expected economic recovery.

A cut before the end of 2022 would be earlier than the Reserve Bank is expecting and would put upward pressure on mortgage costs.

The RBA has repeatedly said it doesn’t see itself lifting the cash rate until at least 2024 but CBA expects things to start happening in November next year.

"Our central scenario has the RBA delivering the first hike in the cash rate in November 2022," CBA head of Australian economics Gareth Aird wrote this week.

"We have pencilled in an increase of 15 basis points, which would take the cash rate to 0.25 per cent.

"We expect that to be followed by an increase of 25 basis points in December 2022. We have three further 25-basis-point hikes in Q1 23, Q2 23 and Q3 23 [the first, second and third quarters of 2023].

"That would take the cash rate to 1.25 per cent, the level at which we assess the cash rate to be neutral.”

A neutral cash rate would mean the economy was neither struggling nor booming and would like sit at that level for some time.

The other two major banks to bring forward their expectations of a rate rise are the ANZ and Westpac who predict things to start moving in 2023.

Mr Aird reminded readers than the forecast was exactly that and it could be off the mark either way.

"There are scenarios that could see the RBA pull the rate hike trigger earlier than November 2022, particularly if they tweak their reaction function because it becomes irrefutable that wages growth is on a path to 3 per cent per annum (the rate of growth they have targeted)," he said.

"Alternatively, the RBA could delay hiking the cash rate if growth in labour supply was to accelerate quickly when the international border is reopened."

The RBA has definitely softened its tone around interest rate timeframes of late but maintains it will keep rates low until there’s full employment and a strong economic recovery from COVID.

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