NAB reverts back to May 2025 for first rate cut expectation
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The news: NAB has returned to its earlier prediction that the Reserve Bank will begin cutting rates in May 2025, but maintains that there will be one cut per quarter back to 3.1% by mid 2026.
The context: The big four bank attributed the reversion to stronger-than-expected labour force data, which suggests the market remains robust. It noted the RBA remained concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish.
The bank’s economists said there were only two more employment data points and one quarterly CPI before its 18 February meeting and it was unlikely the central bank would have confidence in the inflation trajectory by then.
The bank in September changed its expectations from May to February 2025 due to the balance of risks shifting sufficiently for the RBA to feel comfortable in cutting sooner than they expected.
In September, NAB changed its expectations for the RBA’s first rate cut from May to February 2025 due to the balance of risks shifting sufficiently for the RBA to feel comfortable in cutting sooner than they expected.
What they said: “There is a real risk that policy rates stay on hold even deeper into 2025… While we expect rates will move lower over time, because the RBA’s policy stance is only modestly restrictive there is little urgency to adjust policy settings while both inflation and the unemployment rate are evolving gradually,” NAB said.
“RBA policy had diverged from peer central banks that moved policy deeper into restrictive settings. As other central banks have moved to cut rates, that divergence is narrowing. For Australia, the cutting phase will be later and ultimately shallower.”
The source: NAB Monetary Policy Update
