NAB updates monetary policy to forecast rate cuts won’t happen until May 2025
One of Australia’s big four banks has made a bold prediction about the future of interest rates, and it’s even worse than expected.
A major bank is forecasting Aussies with mortgages will have to wait another six months before they see a rate cut.
NAB had along the other big four banks tipped the Reserve Bank of Australia would cut the official cash rate at its first meeting of 2025 in February.
But it now says it doesn’t expect the central bank to rates until May – more than six months away after the release of the latest employment data.
“The labour market has been stronger than expected and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish,” NAB stated in its updated monetary policy published on Thursday.
“On 30 September, we pulled our rate call forward to a first cut in February.
“We did that expecting an improving balance of risks around the inflation outlook would bring a rate cut into view sooner.
“While Q3 CPI data was as expected, we have been surprised by resilience in labour market indicators.
“It remains our view that the unemployment rate will rise a little further before stabilising around 4.5 per cent in mid 2025, broadly in line with the RBA’s November forecast track.”
The NAB’s prediction is not good news for the Albanese government which had been hoping inflation would be reined in and rates would fall before the election due by May next year.
The RBA has one more meeting this year, then three in the first half of next year – February 17-18, March 31/April 1 and May 19-20.
The RBA has said it needs the trimmed inflation rate to be consistently in its target range of 2-3 per cent before a rate cut would happen.
While headline inflation for the September quarter was 2.8 per cent over the year – within the central bank’s target range of 2-3 per cent – this was largely thanks to government subsidies on energy and fuel.
The underlying inflation rate that the RBA watches was 3.5 per cent.
Despite NAB’s grim prediction, Australia’s other Big Four banks – Commonwealth, Westpac and ANZ – are still forecasting a rate cut in February.
Regardless of when the RBA decides to make cuts, the announcement will mark the first monetary policy easing since November 2020.
The RBA is yet to budge on its policy, after it increased rates 13 times between 2022 and 2023 and has kept the rate at 4.35 per cent for a full year now.
Data Insight Director for Canstar.com.au, Sally Tindall, said it was still unclear when the RBA would cut rates.
“The new year might be fast approaching but the timing of the first cash rate cut is still incredibly grey,” Ms Tindall said.
“Unemployment has held steady for three months in a row, giving the RBA the green light to keep the cash rate at 4.35 per cent, for now, particularly seeing as underlying inflation is still a fair way above the bank’s 2 to 3 per cent target band.
“At this stage, it’s difficult to see the RBA cutting rates as its first point of business in 2025.
“The board is likely to want to see at least two more rounds of favourable quarterly inflation data before cutting the cash rate.
“Whether the RBA starts cutting the cash rate in February or May might seem minor in the grand scheme of things, on a decent-sized mortgage, it can add up.”
Ms Tindall warned mortgage owners to not get too excited about any forecast until the RBA make a decision.
“Canstar research shows the average owner-occupier with $600,000 debt and 25 years remaining could end up paying almost $2000 extra in interest over the next two years as a result of a May start to the rate cuts, as opposed to February,” she said.
“This change is a good reminder of just how many balls are still in the air at this stage, particularly for a central bank that is data-dependent.
“If you’ve got a mortgage, don’t bank on a rate cut until it hits your bank account. If you want a rate cut sooner, go out and get one yourself by haggling or refinancing.”
The latest employment figures, released on Thursday, showed Australia’s unemployment rate remained steady at 4.1 per cent for the third month in a row.
The figures found the country had added adding about 15,900 jobs to the economy in October, softer than what economists had forecast.
The next inflation figures will be released on November 27, followed by retail trade figures on December 2 and GDP on December 4 – all key data the RBA board will consider.
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