It breaks from other major banks expecting a February 2025 cut
National Australia Bank (NAB) has again revised its forecast for the Reserve Bank of Australia (RBA) to start cutting interest rates in May 2025, a delay from previous expectation of an earlier easing.
“We revert to our earlier expectation for a first cut in May 2025,” said Gareth Spence (pictured above), NAB’s head of Australian economics. “From there, we continue to see a steady profile of one cut per quarter back to 3.10% by mid-2026.”
The other three in the big four — Westpac, Commonwealth Bank, and ANZ — are still forecasting a rate cut in February.
According to Spence, several factors have influenced NAB’s revised outlook. Australia’s labour market has shown unexpected resilience, raising concerns within the RBA about potential inflationary pressures if labour market cooling stalls and capacity growth remains limited.
“There are only two more employment prints and one quarterly CPI before the February 18 meeting,” Spence said.
“Given the data flow to date, it now looks unlikely the RBA will have enough confidence in the trajectory of inflation by then. There is a real risk that policy rates stay on hold even deeper into 2025.
“Inflation data shows some persistent pressure across components sensitive to domestic demand and labour costs. Combined with the resilience evident in recent labour market data, we think the RBA would need to be concerned about sharper weakening in the labour market to decide to cut as soon as February, with May being more likely.
“Conversely, the RBA will be on hold for longer if we continue to be surprised by the strength in employment growth.”
NAB analysts believe that the Australian economy is moving towards balance, with modest easing in the labour market and capacity pressures expected to be sufficient for inflation to return to target.
However, Spence noted that the RBA’s current policy is only “modestly restrictive,” which suggests there is little urgency for rate cuts while inflation and unemployment adjust gradually.
“RBA policy had diverged from peer central banks that moved policy deeper into restrictive settings,” Spence said.
“As other central banks have moved to cut rates, that divergence is narrowing. For Australia, the cutting phase will be later and ultimately shallower.”
When do you think the RBA will start cutting the cash rate. Share your predictions in the comments section below.
