NAB puts rate cut expectations on hold

NAB has pushed back expectations of a cut to the official cash rate to August, predicting the Reserve Bank to hold fire in May.

National Australia Bank has pushed back its expectations of a cut to the official cash rate to ­August, predicting the Reserve Bank will hold fire in May.

In an economic note yesterday, NAB said the flow of better data in recent weeks would likely be enough to convince the RBA board to hold the cash rate at its record low 2.25 per cent on May 5, “but again signal they are prepared to cut the cash rate further if that would sustainably lift economic growth”.

This week’s first-quarter CPI data confirmed that underlying inflation remained comfortably in the middle of the 2-3 per cent target and the two major inputs into the board’s ­decisions ahead would be how the economy was tracking and ­financial considerations, the ­lender said.

NAB noted that recent readings on retail sales, dwelling ­investment and business conditions had all improved, and led it to ­revise up its near-term domestic demand forecast modestly.

The lender now expects the central bank will cut the official cash rate to a fresh record low of 2 per cent at its August meeting.

“If the unemployment rate resumes its rise, as we expect, they will need to act on this ­easing bias and we have tentatively put a final 25-basis-points cut to 2 per cent into August,” NAB said.

The bank said its revisions to the forecast rate-cut path had prompted it to change its near-term Australian dollar forecasts slightly, saying there was a case to raise its second-quarter forecast from US75c to US78c and the third quarter from US74c to US76c.

However, it said the delay in a rate cut was likely to offer some short-term support to the local currency.