logo
‘Slayed the dragon': CBA's huge call

‘Slayed the dragon': CBA's huge call

Perth Now16-05-2025

Australia's biggest bank believes the battle against inflation has been won, tipping mortgage holders to get back-to-back rate cuts.
Despite national inflation figures coming in hotter than expected and a surge in Aussies employed in April, a Commonwealth Bank economist is 'confident' the RBA will cut interest rates in May before leaving the 'door ajar' for a second rate cut in July. Struggling mortgage holders could get back-to-back rate cuts. NewsWire / Nicholas Eagar Credit: NewsWire
'We expected the RBA to commence normalising the cash rate in February with a 25bp rate cut, which was delivered, and we also forecast another 25bp rate decrease in May,' CBA head of Australian economics Gareth Aird said in an economic note.
'Recall that the RBA left the cash rate on hold in April, and a rate cut was not explicitly discussed. But it is an understatement to say that a lot has happened since the April board meeting.'
CBA's rate cut call is largely in line with most experts and the money markets forecast, which is pricing in about a 95 per cent chance of a 25 basis point cut in May.
If Mr Aird is right in his prediction, the Australian cash rate would fall from 4.10 to 3.85 per cent.
Australia's Cash Rate 2022
The RBA will next meet on May 19-20 when it is widely predicted to cut rates by at least 25 basis points before meeting every six weeks throughout 2025.
Even though the RBA will likely leave the 'door ajar' for back-to-back rate cuts when the central bank meets again in July, CBA says its base case is cuts in May, August and November.
'The CBA call for an end-of-year cash rate of 3.35 per cent is also unchanged,' Mr Aird said.
CBA's call to normalise rates comes as the bank believes Australia has beaten inflation, even with 89,000 Australians finding a job and stronger-than-expected wage growth data coming out in April.
Both are usually a sign of inflation due to more Australians having money to spend in the economy chasing a similar amount of goods. Treasurer Jim Chalmers also said Australia had achieved its soft landing. Dan Peled / NewsWire Credit: News Corp Australia
'Our view is that the proverbial inflation dragon has been slayed,' Mr Aird said.
'But we are not convinced the RBA will share that view just yet given the unemployment rate is still below the RBA's estimate of the NAIRU (non‑accelerating inflation rate of unemployment).'
Treasurer Jim Chalmers said throughout the week that the strong wage and employment data was in line with Australia's soft landing, which is a slowing down of economic activity without causing a recession.
'Real wages reflect the progress we've made together on wages but also the progress we've made together on inflation,' Mr Chalmers said.
'We've got wages growing and we've got inflation falling and those are really the key elements of this soft landing that we have been engineering in our economy at a time of really substantial global economic uncertainty.'
CBA agreed, saying the 'soft landing has been achieved'.
'And this will mean the RBA can continue to normalise the cash rate as we move through 2025 to a level it considers to be a more neutral setting,' Mr Aird said.
'The Reserve Bank of Australia will look past the strength in employment, wages data and cut rates when they meet on May 20.'

Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

AUKUS defence pact 'being reviewed' by US government
AUKUS defence pact 'being reviewed' by US government

Perth Now

timean hour ago

  • Perth Now

AUKUS defence pact 'being reviewed' by US government

The US government is reportedly reviewing the AUKUS trilateral defence agreement between Australia, the UK and the US. The decision to conduct a review has been reported by multiple news outlets including Reuters, which cited US defence officials without giving further details. The review will reportedly examine whether the pact is in line with US President Donald Trump's 'America First' policy, according to the ABC which also cited a Pentagon source. AUKUS is a three-nation security alliance between Australia, the UK and the US agreed in 2021 under the prime ministership of ex-Liberal leader Scott Morrison. It was formed to counter China's strategic moves in the Pacific arena and was underpinned by an agreement between the US and the UK to provide Australia with access to nuclear-powered submarine technology, to eventually replace its aging Collins-class boats. The deal is worth hundreds of billions of dollars, although the first submarine is not expected to join the Australian fleet for years. Australia, which in February made the first of six $US500 million (about $800 million) payments to the US for the boats, is expected to initially buy between three and five off-the-shelf Virginia-class boats. At the time, US Defence Secretary Pete Hegseth said Mr Trump was supportive of the AUKUS deal. "The president is very aware, supportive of AUKUS," Mr Hegseth said after a meeting with Australian Defence Minister Richard Marles. "(He) recognises the importance of the defence industrial base." Mr Marles responded that the pair had discussed how the US and Australia could advance their longstanding diplomatic relationship in terms of national security, including AUKUS. Australia's military budget is expected to rise to 2.3 per cent of gross domestic product, or output, by 2034. The US regime has already called for Australia to increase that spending to around 3.5 per cent. Australia tore up its $90 billion diesel-powered submarine deal with France to sign on to AUKUS and is contracted to buy several off-the-shelf submarines costing about $US4 billion each, before making its own. The first Australian-made boats are not due to be operational until the 2040s.

AUKUS defence pact 'being reviewed' by US government
AUKUS defence pact 'being reviewed' by US government

West Australian

timean hour ago

  • West Australian

AUKUS defence pact 'being reviewed' by US government

The US government is reportedly reviewing the AUKUS trilateral defence agreement between Australia, the UK and the US. The decision to conduct a review has been reported by multiple news outlets including Reuters, which cited US defence officials without giving further details. The review will reportedly examine whether the pact is in line with US President Donald Trump's 'America First' policy, according to the ABC which also cited a Pentagon source. AUKUS is a three-nation security alliance between Australia, the UK and the US agreed in 2021 under the prime ministership of ex-Liberal leader Scott Morrison. It was formed to counter China's strategic moves in the Pacific arena and was underpinned by an agreement between the US and the UK to provide Australia with access to nuclear-powered submarine technology, to eventually replace its aging Collins-class boats. The deal is worth hundreds of billions of dollars, although the first submarine is not expected to join the Australian fleet for years. Australia, which in February made the first of six $US500 million (about $800 million) payments to the US for the boats, is expected to initially buy between three and five off-the-shelf Virginia-class boats. At the time, US Defence Secretary Pete Hegseth said Mr Trump was supportive of the AUKUS deal. "The president is very aware, supportive of AUKUS," Mr Hegseth said after a meeting with Australian Defence Minister Richard Marles. "(He) recognises the importance of the defence industrial base." Mr Marles responded that the pair had discussed how the US and Australia could advance their longstanding diplomatic relationship in terms of national security, including AUKUS. Australia's military budget is expected to rise to 2.3 per cent of gross domestic product, or output, by 2034. The US regime has already called for Australia to increase that spending to around 3.5 per cent. Australia tore up its $90 billion diesel-powered submarine deal with France to sign on to AUKUS and is contracted to buy several off-the-shelf submarines costing about $US4 billion each, before making its own. The first Australian-made boats are not due to be operational until the 2040s.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into the world of global news and events? Download our app today from your preferred app store and start exploring.
app-storeplay-store