NAB brings forward interest rate cut expectation to Feb 2025
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The news: NAB has brought forward its Reserve Bank interest rate cut expectation to February 2025, from May 2025.
The numbers: The major bank believes the first rate cut will be 25 basis points to 4.1% and expects one cut per quarter until it hits 3.1% in early 2026.
It forecasts inflation will slow from 3.5% over 2024 to 2.6% over 2025.
The context: NAB’s economics team said the change was due to the balance of risks shifting sufficiently for the RBA to feel comfortable in cutting sooner than they expected. However, they remained of the view that RBA cuts would be later and shallower than their central bank peers.
NAB noted that it had not made any material shifts to its forecasts and expected the unemployment rate to rise a little further before stabilising to around 4.5%.
What they said: “Elevated inflation is being sustained by housing and stubborn pressures across domestic labour and non-labour costs. We expect cost drivers to fade as capacity constraints ease further, and soft demand growth to inhibit passthrough to end consumer prices. We expect underlying CPI of 2.6% over 2025,” NAB said in a note.
“The risks skew to a later first cut, but also to a faster cadence of cuts than our central profile.
“The worst of the real income squeeze is behind us as inflation has moderated and tax cuts flow through. If that supports a more material pickup in activity that slows or stalls progress on disinflation, the RBA will hold for longer.
"Conversely, confirmation of further progress on inflation would give the RBA space to respond more aggressively if the labour market showed signs of deteriorating.”
The source: NAB monetary policy update
