Commonwealth Bank boss warns of tough economic times ahead despite posting $9.6 billion profit

Commonwealth Bank CEO Matt Comyn reckons the economy is in for a 'short, sharp contraction', despite the bank bringing in massive profits in the last financial year.

The bank recently announced a colossal profit of $9.6 billion (£5.5 billion) in the last financial year, which increased by 11 per cent as pandemic-related buffers were scaled back.

But despite this gargantuan sum, Comyn believes that spending must fall to stop the Reserve Bank of Australia from increasing the official cash rate beyond three per cent.

“What we are expecting, and would hope to see, is a short, sharp contraction in the Australian economy,” Mr Comyn told the Australian Financial Review.

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"We are definitely expecting a more challenging year ahead than we have seen in the last 12 months."

For the last four consecutive months, the Reserve Bank of Australia has upped interest rates.

The banking CEO believes more rate increases will come, predicting to the Australian Financial Review that Aussies should expect cash rates to increase by another 0.75 of a percentage, to sit at 2.6 per cent.

The cash rate is currently 1.85 per cent.

Comyn went on to tell the ABC's The World Today program that the bank data shows that spending began to drop when interest rates began to rise.

"It's quite early [after] the immediate rate rises, [but] we are already seeing a downturn in spending across our customer base, both from a debit and credit perspective," he told the ABC.

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The Commonwealth Bank CEO added that the reduced household spending will have a direct impact on shrinking the economy later in 2022.

"Those increases in the cash rate are going to have, and continue to have, quite a pronounced effect on the economy," he said, as per the ABC.

But he does not think that Aussies tightening their belts, as interest rates and the cost of living increases, will trigger a recession.

"There's certainly a risk of [a recession] if inflation isn't brought under control quite rapidly," he told the ABC.

He added: "We're looking for early signs of stress. We're not seeing that yet."