When it comes to a front-row seat to the Australian economy no one gets closer than Matt Comyn who heads the country’s largest lender, the Commonwealth Bank. And the good news is that he doesn’t think the sky is falling nor that the Australian housing market is set for a hard landing.
Comyn, who is so close to the action that he can feel the spray of the nation’s economic sweat, is fairly upbeat. The CBA is our biggest mortgage lender, the largest holder of bank deposits, a pivotal lender to small business and (most importantly) the major provider of credit and debit cards – which gives the bank real-time granular information on our spending and the late payment of interest.
Armed with this intelligence, it is noteworthy that the CBA has broken from the pack of economists to predict that inflation is close to peaking or may have already peaked in Australia and that the Reserve Bank interest rate will top out at 1.35 per cent this year and 1.6 per cent next year.
In other words, Comyn thinks that RBA’s May rate rise, from 0.1 to 0.35 per cent, is already starting to yield results.
“We anticipate that having seen in prior cycles, that the Australian economy and consumers will be quite sensitive to and responsive to changes in the cash rate. Therefore, we think the rate of inflation will be slowed by cash rate increases that will reduce demand and the domestic economy,” he told this masthead on Thursday.
That said, Comyn readily admits his bank’s crystal ball was similarly clouded as the rest of the market, which didn’t see the speed with which inflation has hit the economy this year.
The difference between the position taken by the CBA and other economic forecasters is that the bank thinks monetary policy will do the job of slowing inflation faster, in part because we carry high levels of personal debt and are therefore particularly sensitive to rate rises.
And because of this Comyn believes there will be no need for the RBA to push the cash rate up to 3 per cent – a level which is predicted by many others.
This view is backed up by fresh surveys on consumer sentiment that demonstrate it has dropped well into negative territory, with people more acutely concerned about their future financial position.