CBA delays lowering rates as forecasted.

The Commonwealth Bank has recently changed its initial forecast, predicting that mortgage holders will receive a welcomed interest rate decrease just in time for the holiday season. Previously, CBA was the only one among the four major banks to anticipate a cut in the cash rate by the Reserve Bank in December, while the others predicted a delay until February.

However, despite the recent release of consumer price index figures this morning, which showed a decrease in headline inflation to its lowest annual level since March 2021 and its lowest quarterly rise since June 2020, Commonwealth Bank still believes that core inflation is too high to warrant a rate cut next week or in December. Gareth Aird, the bank's head of Australian economics, and senior economist Stephen Wu stated that while the CPI for the September quarter indicated a continued decrease in inflation, it has not been substantial enough on an underlying basis.

In light of this, CBA has revised its prediction and no longer expects the RBA to make a cash rate cut in December. Instead, they have marked February as the month for a 25 basis-point decrease. The core or underlying inflation did decrease significantly in the September quarter, reaching 3.5 per cent – its lowest rate since December 2021. However, this is still above the RBA's target range of 2-3 per cent.

The ABS also revealed that services inflation showed a slight increase of 0.1 per cent. Sally Tindall, Canstar's data insights director, believes that any possibility of a cash rate cut in 2024 is now out of the question. While headline inflation has officially fallen within the RBA's target range, Tindall argues that this is mainly due to temporary electricity rebates and volatile petrol prices. The trimmed mean inflation, which is the RBA's preferred measure, is still far from the target range. Additionally, with services inflation moving in the wrong direction, it is unlikely that the RBA will change its course.

Unfortunately, this means that Australian borrowers will have to continue bearing the burden until 2025. All four major banks are now in agreement that the RBA will decrease interest rates in February, but their forecasts for the number of cuts in 2025 vary. ANZ predicts three cuts of 0.25 per cent each, while CBA and Westpac anticipate four cuts, and NAB has predicted five.

According to Canstar, four rate cuts would result in a 1 per cent decrease in interest rates, reducing monthly mortgage payments by $357 for a $600,000 loan – a total savings of nearly $4500 a year for borrowers.

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