CBA’s latest rates forecast makes markets interesting…
The post CBA (ASX:CBA) says interest rates could jump as early as next year appeared first on The Motley Fool Australia. –
The Commonwealth Bank of Australia (ASX: CBA) is the latest of the big four banks to bring forward its estimates for the Reserve Bank of Australia’s first interest rate hike.
While Australia’s biggest bank isn’t the first to shift its estimates, its expectation is the earliest of the bunch.
CBA forecasts higher rates sooner, ASX dips
Head of Australian economics at Commonwealth Bank, Mr Gareth Aird has made known the bank’s latest interest rate prediction.
According to Aird, the RBA’s first rate rise in more than 11 years could occur as early as November next year.
In a note, Mr Aird explained how the CBA sees interest rate increases unfurling:
We have pencilled in an increase of 15 basis points, which would take the cash rate to 0.25 per cent. We expect that to be followed by an increase of 25 basis points in December 2022. We have three further 25-basis-point hikes in the first, second and third quarters of 2023.
Furthermore, today’s forecast is the earliest of those made by Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC). Potentially shocking the ASX share market. The S&P/ASX 200 Index (ASX: XJO) is trading 0.37% lower to 7,315.4 points, at the time of writing.
Earlier in the month, ANZ moved its rate increase forecast to the second half of 2023, with the potential of being earlier if the trend of rapid economic improvement continues.
Likewise, Westpac brought forward its estimates to the first quarter of 2023 earlier this week. The move followed the May employment report, which was described as a ‘game changer’ by Westpac’s Chief Economist, Bill Evans.
Crystal-balling the future
Attempting to peer into the future, ASX-listed CBA also forecasts that once the RBA cash rate hits 1.25%, it will be at a neutral level. Essentially that means CBA deems 1.25% the likely rate for an economic environment at equilibrium.
There are situations where Mr Aird could see the RBA hiking rates even earlier than November next year. Such a case would be if wage growth becomes irrefutably on a path to 3% per annum.
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Motley Fool contributor Mitchell Lawler owns shares of Commonwealth Bank of Australia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.