The Commonwealth Bank of Australia (CBA) believes inflation will continue to normalise toward the Reserve Bank of Australia’s 2-3% target in 2024, with a prediction the central bank will lower interest rates by a full 75 basis points (bp) by September this year.
CBA chief economist Stephen Halmarick says the Aussie economy has a high chance of achieving its “narrow path” to a soft landing in 2024, as higher interest rates have had the desired effect of slowing the economy without pushing it into full recession.
“Looking ahead, 2024 will have more than its fair share of risks and challenges, particularly geopolitical risks as well as the United States presidential election,” Halmarick said.
“Despite these obstacles, the Australian economy remains in relatively good shape.”
Westpac chief economist Luci Ellis agrees, telling the ABC she believes slowing inflation may prompt the RBA to act.
“Assuming inflation declines as we and the RBA expect, then as the year progresses, the RBA board should start to see scope to make monetary policy less contractionary than it is at present,” she said.
“Our current forecasts see the cash rate starting to decline from September 2024. By the end of 2024, we expect the cash rate to be 3.85%.”
Economy and unemployment on the rise
Halmarick is forecasting positive growth for the Australian economy in 2024 but also predicts a 4.5% increase in the unemployment rate by year’s end.
The CBA is also expecting a dip in net migration coupled with an increased supply of new homes to restore some balance to the Australian housing market, which the bank has tipped to lift another 5% this year, having risen 9.6% since February 2023.
“The good news is that the pace of global inflation clearly began decelerating around mid-2023 and we expect further deceleration in 2024, however, markets will also focus on the balance between returning inflation to 2% targets, without doing too much damage to labour markets,” Halmarick explained.
“As 2023 draws to a close, markets have shifted to our view that the global monetary policy tightening cycle is at an end and that 2024 will see interest rate cuts from some of the major central banks, especially the US Federal Reserve and the RBA.
“CBA is forecasting the annual rate of inflation back at 3% at the end of 2024, well ahead of the RBA’s current forecast and closer to the Commonwealth Government’s latest forecast.
“We also expect the RBA to begin a modest monetary policy easing cycle from September 2024 onwards.”
In conclusion, Halmarick emphasises that climate change will play a pivotal role in the market moving forward.
“Global capital will need to continue to flow into markets and industries that can help the world move towards the net zero carbon target,” he said.