NAB Predicts Significant Rate Cuts from RBA in May
NAB has reiterated its forecast of a substantial interest rate reduction by the Reserve Bank of Australia (RBA), predicting a 50 basis point cut in the cash rate during the upcoming meeting in May. This move aligns with NAB’s assessment that multiple cuts are necessary to align Australia’s monetary policy with recent global economic trends.
The anticipated adjustments would see a series of rate cuts over the coming months—25 basis points in July, August, November, and February—resulting in a cash rate of 2.60%. For homeowners, this could mean a reduction of around $526 in monthly repayments on a standard $600,000 mortgage.
Sally Auld, NAB’s chief economist, emphasised that the RBA needs to attain a more neutral monetary policy expeditiously. She suggested that had the RBA been aware of current economic conditions during its last meeting in April, a cut of 25 basis points would likely have already occurred. Auld indicated that the RBA historically reacts to international developments and that the necessary adjustments should mirror its responses during past crises, including the Global Financial Crisis and the COVID-19 pandemic.
Furthermore, Auld referenced the most recent inflation data, which indicates that both headline and underlying inflation fall within the RBA’s target of 2-3%. She believes this alleviates any concerns regarding inflationary pressures stemming from current labour market conditions. Auld also noted the need for the RBA to adapt its policy considerations, recognising that inflation risks are imbalanced, advocating for more decisive policy actions.
In terms of economic forecasts, NAB has adjusted its gross domestic product (GDP) estimates downwards to 2% and increased its predicted peak unemployment rate from 4.2% to 4.4%. Following a potential 50 basis point cut in May, estimated savings for the average borrower would be $181, while a total potential reduction of 1.50% by March 2026 could enhance savings up to $526.
Other Banks’ Perspectives on RBA Rate Cuts
Commonwealth Bank, Westpac, and ANZ are also predicting a rate cut, albeit at a smaller magnitude of 25 basis points. CBA’s head of Australian economics, Gareth Aird, observed the latest inflation data was slightly higher than anticipated. While a May cut seems plausible, Aird noted it is not guaranteed.
He maintained that while a monetary normalisation is justified, the RBA would likely favour a gradual approach to rate reductions. CBA projects one 25 basis point cut each quarter in 2025, culminating in a cash rate of 3.35%.
Westpac economist Justin Smirk acknowledged the recent inflation data, despite being higher than expected, has not altered their forecast for a May cut. They envision a total of three rate cuts adding up to 75 basis points this year, with subsequent reductions anticipated in August and November.
ANZ’s senior economist, Adelaide Timbrell, expressed confidence in a 0.25% cut in May, citing the trimmed mean inflation figures and the significant risks to both global and domestic economic growth. ANZ forecasts additional cuts in July and August, aligning with NAB’s aggressive outlook.
As discussions unfold surrounding the RBA’s upcoming decisions, the commentary from these financial institutions highlights a consensus around the necessity for adjustments, albeit with variations in the expected extent and timing of cuts.
Conclusion
The evolving economic landscape suggests a forthcoming shift in Australia’s monetary policy, with NAB leading the charge in forecasts for substantial rate reductions. This anticipated easing could provide significant relief for borrowers and signal the RBA’s responsiveness to both domestic and international economic pressures. With the May meeting fast approaching, clarity on the RBA’s approach will be crucial for homeowners and investors alike.
