NAB has become the latest of the big four banks to forecast a delay in interest rate cuts following a shocking set of inflation figures.
Australia’s largest business lender is now the second major bank, after ANZ, to declare relief would be delayed for millions of home borrowers.
Both banks also warn of the prospect of an increase in August, which would take the Reserve Bank’s cash rate to a new 13-year high of 4.6 per cent and add to the most aggressive hikes since the late 1990s. 1980s.
NAB chief economist Alan Oster late on Wednesday updated his forecast for the Reserve Bank to delay its first rate cut until May next year, i.e. from November.
This came after new data showed headline inflation rose 4 per cent in the year to May, up from 3.6 per cent in April.
Price increases are now at the sharpest level since November, when the RBA last raised rates, following a rise in things like rents and petrol prices.
With inflation now well above the RBA’s 2 to 3 per cent target, the NAB revised its forecasts to delay the first rate cut by six months.
“We now expect the RBA to remain on hold for longer, with a first rate cut unlikely until May 2025, sooner in November 2024,” he said.
NAB has become the latest of the big four banks to forecast a delay in interest rate cuts following a shocking set of inflation figures (pictured, a Melbourne bank branch).
But Oster said an August rate hike was still a possibility if more complete June quarter data, due July 31, had more bad news.
“It is possible that the board will change course and raise rates at its August meeting, especially if second-quarter results exceed expectations,” he said.
“But with the labor market relaxing we don’t think they will be forced to do that.”
A fortnight ago, ANZ changed its predictions for the RBA to cut rates in February rather than November.
But Catherine Birch, senior economist at the bank, said the Reserve Bank could potentially raise rates at its next meeting on August 6 if inflation for the June quarter showed prices rising by 4 per cent, like in May.
“An outcome like this, coupled with upward revisions to the RBA’s expectations for labor market activity and data, could prompt the board to raise its rates at its August 5-6 meeting,” he said.
“That is not our decision at this time, but we will consider all available information.”
Commonwealth Bank and Westpac still expect a rate cut in November.
The NAB call came after new data showed headline inflation rose 4 per cent in the year to May, up from 3.6 per cent in April (file image).
This month, the Reserve Bank left the cash rate unchanged at a 12-year high of 4.35 percent, but Governor Michele Bullock said the board considered a rate increase but not a cut.
“Yes, at this meeting the council discussed the need to raise interest rates,” he told reporters.
“No, the case of a cut was not considered.”
Another rate hike would be the 14th since May 2022 and would add $100 a month to repayments on an average $600,000 home loan, raising monthly servicing costs to $3,968.