- NAB now predicts May rate cut
Australian home borrowers could have to wait until May next year for a rate cut, a major bank says.
NAB has revised its forecast for the Reserve Bank to cut rates after Easter instead of February.
Chief economist Alan Oster said a rate cut in May was now more likely because the Reserve Bank was concerned that labor costs would keep inflation high.
“The labor market has been stronger than expected and the RBA remains concerned about the upside risks to inflation if the gradual cooling of the labor market stops and capacity growth remains sluggish,” he said.
The 30-day interbank futures market now only expects a rate cut from the RBA in 2025, from the current level of 4.35 percent.
But NAB is at least more optimistic, predicting three rate cuts next year that would see the Reserve Bank’s cash rate fall back to 3.6 per cent for the first time since May 2023.
The National Australia Bank updated its predictions on Thursday just six weeks after revising its forecasts to cut rates in February instead of May.
Australia’s other big four banks (Commonwealth, Westpac and ANZ) are still expecting a rate cut in February.
Australian home borrowers could have to wait until May next year for a rate cut, a major bank says. In the photo, shoppers in Sydney’s Pitt Street shopping center.
Headline inflation in the year to September fell to a three-year low of 2.8 percent, but this was based on one-off factors such as $300 electricity rebates and cheaper gasoline prices.
Core inflation, excluding volatile prices, was higher at 3.5 per cent, and above the Reserve Bank’s target of 2 to 3 per cent.
Services inflation was even higher, at 4.6 percent, meaning that domestic factors are now the key cause of rising prices rather than global supply constraints.
While wage growth has slowed to 3.5 percent, unemployment remains low at 4.1 percent, with another 36,800 jobs created in October.
The NAB predicted that inflationary pressures would not ease until the unemployment rate rose to 4.5 percent.
“Inflation data shows some persistent pressure between components sensitive to domestic demand and labor costs,” Oster said.
“A further cooling in the labor market and evidence of further progress in inflation results made over the next two quarters will alleviate concerns that the labor market is a source of inflation risk and provide room to ease policy to preserve full employment”.
Australian borrowers are missing out on relief even though rates have already been cut this year in the United States, the United Kingdom, Canada, the European Union and New Zealand.
NAB has revised its forecast for the Reserve Bank to cut rates after Easter instead of February. Pictured is a Sydney branch.