The major has updated its cash rate forecast and now expects just one more rate cut this easing cycle.
The Commonwealth Bank of Australia's (CBA) economics team has updated its interest rate projections, with less easing now expected.
Belinda Allen, head of Australian economics, outlined in an economic update on Monday (15 September) that the bank now expects the Reserve Bank of Australia (RBA) to conclude this easing cycle in November, when it anticipates a 25-basis-point cut in the cash rate.
This would take the terminal cash rate for this easing cycle to 3.35 per cent, “close to [CBA’s] estimate of neutral (around 3.25 per cent)”.
While the major bank has long suggested that this easing cycle would see 100 bps of cuts, the bank had previously suggested that there could be another cut in 2026, as well.
Before the August cash rate decision, for example, CBA said: “The chance of a further rate cut in early 2026 (to take the cash rate to 3.10 per cent) is building. Our read on the inflation pulse indicates the chance of trimmed mean CPI moving below the mid-point of the 2.5 per cent target is growing due to the sluggish economic recovery and the underlying inflation components.”
However, the quarterly national accounts, released in early September, showed that growth rebounded in the June quarter, and the central bank has suggested that the economy is moving on to a more solid footing.
Speaking at the 60th Shann Memorial Lecture in Perth on 3 September, RBA governor Michele Bullock noted: “We’re seeing the private sector start to demonstrate a little bit more growth now, which I think is positive.
“What it means for future of interest rates I don’t know at this stage, but all I would say is that if anything, probably, it’s a little stronger than we thought it would be.
“So that’s good, but it does mean that it’s possible that if it keeps going then there may not be many interest rate declines left to come. But it all depends.”
In an economic update this week, Allen highlighted that market pricing has also shifted higher, with less easing generally expected.
“Since the August meeting, financial markets have questioned the extent of upcoming easing by the RBA due to better economic data and an upside surprise to the July CPI Indicator,” the CBA economist said and noted that the next monthly inflation data (for August) will come out ahead of the RBA meeting on 24 September.
“The RBA next meet in two weeks on 29-30 September. We are not expecting any change to the cash rate at this meeting. Markets currently ascribe about a 10 per cent chance of a rate cut in September and around 70 per cent of one in November, down from 100 per cent or so a week or two back.
“On our count, we can pinpoint seven pieces of economic data that collectively have confirmed an economic recovery is becoming entrenched in the economy,” Allen finished.
What does the RBA think?
In its minutes for the August meeting, RBA board members agreed that – based on what they knew at the time of the meeting – further rate cuts over the coming year “appeared likely”, and that the current stance of monetary policy was still “somewhat restrictive”.
However, on Tuesday (16 September), the RBA’s assistant governor (economic) Sarah Hunter said the RBA believes inflation and employment are now close to target after recent rate cuts, with the economic outlook broadly balanced (but policy still data-dependent).
Speaking at the 2025 AFIA Conference, she commented: “The last couple of years we’ve really been trying in terms of our policy setting to bring inflation back down... we had inflation almost at 8 per cent at the end of 2022 and we’ve been really trying to bring inflation back down starting with the cash rate hikes more than a couple of years ago now.
“And we think, yeah, we hope indeed that we’re pretty close to getting inflation back at target, it’s almost there.
“We’ve put through three cash rate cuts this year. And in the context of the labour market and our mandate, we also think that we’re pretty close to full employment,” she said, though noted that there are still “some pockets of tightness” in some parts of the country and the labour market.
“So the economy, we hope we’ve achieved our mandate,” she added.
“We think the economy is going to stay in terms of inflation and the labour market about where it is right now… The forecast at the moment, we think, the outlook is broadly balanced, but we’re monitoring, we’ll wait and see. We’ll see how things play out and the board will set policy accordingly. So we never quite know.
“But right now we hope that we can keep things where they are today.”
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