Commonwealth Bank (CBA) expects the Reserve Bank of Australia (RBA) to cut the cash rate by 25 basis points in August, stating that the June quarter inflation figures have solidified this expectation. CBA is one of Australia’s largest financial institutions, providing a range of banking and financial services to individuals and businesses. The bank’s economists described the trimmed mean inflation increase of 0.6 per cent for the quarter, resulting in an annual rate of 2.7 per cent, as “very encouraging” and softer than both market predictions and their own internal forecasts.
According to a note released by CBA, “We expect the Reserve Bank of Australia to cut the cash rate by 25bp in August.” The bank added that “The disinflationary pulse in the economy appears on track based on the underlying components.” CBA also projects an additional 25 basis point rate cut in November, which would return the cash rate to a neutral setting.
The bank highlighted that underlying services inflation had eased, health inflation was weaker than initially anticipated, and holiday travel prices were softer than expected. These factors collectively support the argument for easing monetary policy. CBA noted that progress is being made on housing, market services, and the more persistent administered prices.
CBA economists now assess that the risks to inflation are skewed to the downside, particularly if the economic recovery continues to fall short of expectations. This outlook reinforces their anticipation of the RBA implementing the initial rate cut in August.
