Commonwealth Bank of Australia (ASX: CBA) has a different take on inflation than the Reserve Bank of Australia (RBA). Saying inflation is running hot, the bank foresees the RBA lifting rates sooner than the central bank has forecast.
CBA shares – alongside the other banks – are among those that could stand to benefit from higher interest rates.
Though it’s a two-edged sword.
On one side, higher interest rates can improve banks’ lending margins.
On the other side, if rates rise quickly, it could impact the banks’ lucrative mortgage lending as new home buyers take a pause. Not to mention the potential of increased bad debts.
Depending on which force is stronger, rising rates could either help or hinder CBA shares.
With rate rises in the cards, whether sooner or later, investors should have some greater insight into this balance over the coming year.
Brace for a June rate rise
Previously, CommBank had forecast that the RBA would move to raise the cash rate from the current record low of 0.10% in August.
Now CBA has moved that up to a likely June rate increase.
As the Australian Financial Review reports, CBA’s economics team estimates trimmed mean inflation to come in at 3.5% by mid-year. That’s above the RBA’s own forecast of a trimmed mean CPI of 3.25%.
According to CBA’s head of Australian economics, Gareth Aird:
We are very comfortable with our expectation that the Q1 2022 underlying inflation data will be a lot stronger than the RBA’s forecast. If the Q1 2022 CPI prints in line with our forecast, the RBA will not need an additional CPI to conclude that inflation is ‘sustainably within the target range’. The RBA will simply need to be satisfied that wages growth is moving towards the desired levels.
On the wages front, CommBank expects that first quarter results will show Aussie wages growing by 3% on an annualised basis.
If the RBA moves the cash rate higher in accordance to CBA’s forecast, Australians will see a 0.15% increase in the cash rate in June, followed by 3 more increases of 0.25% this year yet, bringing the official rate to 1% by the end of 2022.
How have CBA shares been performing?
CBA shares, flat in late afternoon trading today, have outperformed the S&P/ASX 200 Index (ASX: XJO) in 2022, in that the bank’s losses have been less.
Since the opening bell on 4 January, CBA shares are down 2.3% compared to a loss of 4.9% posted by the ASX 200.
The post Own CBA (ASX:CBA) shares? Here’s the bank’s hawkish outlook for RBA rate rises appeared first on The Motley Fool Australia.
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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.
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