Australian homeowners buckling under mortgage stress could soon receive relief from crushing interest payments, with banking giant Commonwealth Bank forecasting a rate cut as soon as November in its latest household spending report.
“We remain of the view that softer economic data, a further deceleration in inflation and the easing of monetary policy in many other major central banks will see the RBA begin to cut interest rates in November,” the report states.
The forecast follows a flat month-on-month change in household spending, with the bank’s Household Spending Insights index remaining unchanged from June at 148.2 points.
In June, the index had lifted 0.8 per cent on a month-on-month basis.
Consumer spending makes up about 50 per cent of the Australian economy and CBA’s index is a closely watched economic indicator.
The bank’s growing confidence of a cut contrasts with a more cautionary tone from the Reserve Bank of Australia, which held the cash rate steady at 4.35 per cent at its August 6 meeting, citing concerns about persistent inflationary pressures in the economy.
The RBA’s cash rate serves as a benchmark rate for the broader economy and impacts mortgage payments, with banks generally quick to adjust their rates in line with the RBA’s rate changes.
After the August meeting, RBA governor Michele Bullock said the board did not expect to cut rates for another six months.
“Based on what I know today and what the board knows today, what we can say is that a near-term reduction in the cash rate doesn’t align with the board’s current thinking,” she said after the meeting.
“We’ve seen from overseas experience how bumpy inflation can be on the way down and across the economy we need to see demand and supply coming back into better balance.”
The RBA has hiked rates 13 times from 0.1 per cent in May 2022 to 4.35 per cent in November 2023 to tame inflation, adding hundreds of dollars in extra monthly payments to mortgage holders.
In the year to July, the report states the pace of increase in the spending index lifted to 4.5 per cent, revised upwards from 2.1 per cent in June.
The lift was driven by “seasonal factors”, the bank said, with large increases in utilities, education and health payments in the month.
Over the year to July, the largest spending rises were in insurance, which recorded a 15.9 per cent year-on-year increase, and health with a 13 per cent bump.
Hospitality spending, meanwhile, was relatively flat with a 0.3 per cent rise.
The report also reconfirms a growing split in Australia between renters and those with a stake in home ownership.
“There remains a significant difference in spending by home ownership status,” the bank said.
“Spending by renters was up just 0.3 per cent to July, while spending for mortgage holders is up 3.3 per cent to July and spending for those who own their home outright is up 4 per cent to July.”
The impact of the government’s income tax cuts, which arrived from July 1, would be captured in the “coming months”, the bank added.
The data is drawn from de-identified payments from the bank’s seven-million customer base, accounting for about 30 per cent of Australian consumer transactions.