NAB says Reserve Bank of Australia could move to cut rates in February

Matt Mckenzie
The Nightly
NAB’s rethink comes just days after fresh data showed underlying inflation had fallen 1 percentage point in the past three months
NAB’s rethink comes just days after fresh data showed underlying inflation had fallen 1 percentage point in the past three months Credit: Jackson Flindell/The West Australian

All of Australia’s big four banks are now tipping an interest rate cut by mid-February, after NAB shifted up its forecast.

NAB had expected rate relief in May 2025 but on Monday pulled that estimate forward by three months.

The bank has lined up with Westpac and ANZ in predicting a new year boost for borrowers at the Reserve Bank’s first meeting of 2025.

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Commonwealth Bank — among the most optimistic about interest rates in recent years — reckons rates could fall as soon as December.

NAB’s rethink comes just days after fresh data showed underlying inflation had fallen 1 percentage point in the past three months to be 3.4 per cent.

That’s closing in on the RBA’s target zone, although the central bank has warned lower inflation would need to be “sustainable” before it could lock in relief for desperate borrowers.

It was only a partial picture, however, with quarterly numbers seen as more reliable.

There’s also a risk that moving to cut rates too quickly would restart inflation, forcing interest rates even higher.

Economic growth is close to the slowest level in decades — yet the jobs market is strong, adding to the RBA’s caution.

NAB Economics said “inflation pressures are cooling, but only gradually”.

“The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected,” the research note said.

“It remains our view that RBA cuts will be later and shallower than many peer central banks.”

The broader squeeze on household income was likely to ease as inflation moderates and after major tax cuts, NAB said.

“If that supports a more material pickup in activity that slows or stalls progress on disinflation, the RBA will hold for longer,” the note said.

“Conversely, confirmation of further progress on inflation would give the RBA space to respond more aggressively if the labour market showed signs of deteriorating.”

At the end of last week, markets were forecasting an official cash rate of 4.21 per cent in December, implying traders see a cut this year as more likely than not.

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