Commonwealth Bank tips 6 interest rate cuts by middle of next year

Key takeaways

Australia's biggest lender, the Commonwealth Bank, is forecasting 6 interest rate cuts in 2024 and 25 starting in September.

This would take the Reserve Bank of Australia cash rate back to 3.6 per cent in the second half of 2024 for the first time since May 2023 - down from an existing 12-year high of 4.35 per cent.

They also expect dwelling prices to rise a further 5% in 2024.

While CBA economists predict the RBA will start cutting rates from September this year, the bank's CEO Matt Comyn said there was a possibility they wouldn’t come until 2025.

The Commonwealth Bank, Australia's biggest lender, is forecasting six interest rate cuts in 2024 and 2025 starting in September this year.

They also expect dwelling prices to rise a further 5% in 2024.

The CBA's head of Australian Economics, Gareth Aird, says the recent rise in unemployment will force the RBA to take action to avoid a blowout in jobless numbers.

“Our base case sees the RBA commence an easing cycle in September 2024 (75 basis points of rate cuts by end-2024 and a further 75 basis points of cuts in H1 2025,” Aird said.

This would take the RBA cash rate back to 3.6 per cent in the second half of 2024 for the first time since May 2023 - down from an existing 12-year high of 4.35 per cent, and down to 2.85 per cent by mid-2025.

The latest Australian Bureau of Statistics data showed our unemployment rate has risen to 4.1 per cent as 22,000 people left the employment pool in January.

The seasonally adjusted unemployment rate rose by 0.1 percentage point to the highest point it has been in two years.

Aird says the CBA expect the unemployment rate is heading for 4.5 per cent in coming months unless interest rates are reduced to encourage economic growth.

CBA expects the unemployment rate will rise to 4.5 per cent by the end of 2024, which is higher than the RBA’s current forecast of 4.3 per cent.

"We believe RBA cuts will be required this year to prevent the unemployment rate from rising much above 4.5 per cent," he said

CBA had previously predicted three rate cuts by the end of 2024 and another three rate cuts in the second half of 2025. This update brings the second trio of rate cuts forward to the first half of next year.

CBA CEO differs

While CBA economists predict the RBA will start cutting rates from September this year, the bank's CEO Matt Comyn said there was a possibility they wouldn’t come until 2025.

He was reported in the Australian Financial Review as saying there was

“..certainly a possibility that could be delayed” until the new year, after US inflation data came in stronger than forecast in January at 3.1 per cent.

“[Rate cuts] will be data-driven and, clearly, inflation coming down should be the highest priority,”

“There is some uncertainty about exactly when rates will come down and what the pace of the reductions might be.”

What does this mean for you as a property investor?

2024 is likely to be a year of two halves and I see the current market offering a window of opportunity for property investors with a long-term focus.

You see…we are at the early stages of a new property cycle, something that doesn’t happen very often.

Not that I suggest you try and time the market- this is just too difficult, and in truth, you’ve missed the bottom which occurred in early-2023.

But if the market hands you an opportunity like this, why not take advantage of it?

Taking advantage of the upturn stage of a new property has created significant wealth for investors in the past.

Moving forward, demand is going to outstrip supply for some time to come as we experience record levels of immigration at a time when we’re not building anywhere as many properties as we require.

At the same time, the cost of construction of delivering new dwellings will keep increasing not only because of supply chain issues and the lack of sufficient skilled labour but also because builders and developers will only commence new projects if they are financially viable and currently new projects will need to come on line at considerably higher prices than the current market price,

In due course consumer sentiment will rebound when it becomes clear that interest rates have peaked and are going to start falling.

At that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.

We are also going to be experiencing a prolonged period of strong rental growth - the rental crisis will only worsen further, with no end in sight.

Now I'm not suggesting taking advantage of tenants, what I'm suggesting is to recognise there is currently a problem (lack of rental accommodation) and provide a solution.

So rather than trying to hunt down a bargain, focus on buying an investment-grade property in an A-grade location because these types of properties are in short supply but are still selling for reasonably good prices… Plus they’ll hold their value far better in the long term.

While it might feel counterintuitive to buy at a time when there are so many mixed messages in the media, you can benefit from less competition, low consumer sentiment, minimal downside risk and minimal risk of oversupply.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.