The Commonwealth Bank of Australia (CBA) has pushed back the timing of when its expects the Reserve Bank of Australia (RBA) to begin lifting interest rates.
“The macro backdrop and RBA commentary indicate that the next move in interest rates is up,” says Michael Blythe, Chief Economist at the CBA.
“But new uncertainties from falling dwelling prices, funding cost pressures and tightening lending standards are set to lengthen the RBA’s patience.
“We have delayed the timing of the first RBA rate rise from November 2018 to February 2019 as a result.”
And while the CBA still expects the RBA will begin normalising policy earlier than both financial markets and many economists, it expects the subsequent tightening cycle to be “cautious and drawn out”.
“The expansion of household debt has increased the interest rate sensitivity of the Australian economy,” says Blythe.
“A 3.5% cash rate would be dangerously close to levels that could trigger some genuine household financial stress. Policy makers are well aware of these issues.
“While the start date may be a bit later, we still put the peak cash rate at 2.5% and don’t expect to get there until 2020.”
The move from the CBA means the NAB is the only major “big 4” bank who still expects the RBA to begin lifting interest rates this year. While it is sticking to this call for the moment, it says that the main risk is that the RBA won’t lift rates until 2019.
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