Banks
How will falling rates affect bank shares?
The Latest Q&A
Answer
Hi Jeff,
- Historically banks enjoy higher margins in a higher interest rate environment, currently interest rates in Australia look unlikely to move until 2025.
- If rates are cut, the quantum of the impact on margins will depend on the reasons why they are being cut. If the economy is in trouble, banks will struggle but if’s to simply reverse restrictive policy because inflation is under control and growth is solid, but not too hot, then bank margins will be fine.
- CBA has made all-time highs this month and as we mentioned in the webinar on Friday, we believe the power of AI is being underestimated by the more advanced members of the “Big Four” and it will drive efficiencies.
Overall, declining rates will make it harder for banks to continue their upside push but locally the futures market isn’t looking for cuts until 1Q of 2025.
