Australian home borrowers could be waiting until May next year for a rate cut, a major bank says.
NAB has revised its forecasts to have the Reserve Bank cutting rates after Easter instead of February.
Chief economist Alan Oster said a May rate cut was now more likely because the Reserve Bank was worried about labour costs keeping inflation high.
‘The labour market has been stronger than expected and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish,’ he said.
The 30-day interbank futures market is now only expecting one RBA rate cut in 2025, from the existing 4.35 per cent level.
But NAB is at least more optimistic, predicting three rate cuts next year that would take the Reserve Bank cash rate back down to 3.6 per cent for the first time since May 2023.
National Australia Bank updated its predictions on Thursday just six weeks after it had revised its forecasts to have rates being cut 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 be waiting until May next year for a rate cut, a major bank says. Pictured are shoppers in Sydney’s Pitt Street Mall
This would mark the first monetary policy easing since November 2020, and see the RBA unwind its 13 increases in 2022 and 2023.
Headline inflation in the year to September fell to a three-year low of 2.8 per cent but this was based on one-off factors like $300 electricity rebates from the federal government and cheaper petrol prices.
Underlying inflation, with volatile price items stripped out, was higher at 3.5 per cent, and above the Reserve Bank’s 2 to 3 per cent target.
Services inflation was even higher at 4.6 per cent, meaning domestic factors like weak productivity and insufficient labour are now the key cause of higher prices instead of global supply constraints.
While wages growth has slowed to 3.5 per cent, unemployment remains low at 4.1 per cent with another 36,800 jobs created in October.
NAB predicted inflationary pressures would not ease until the jobless rate climbed to 4.5 per cent.
‘Inflation data shows some persistent pressure across components sensitive to domestic demand and labour costs,’ Mr Oster said.
‘Some further cooling in the labour market and evidence of further progress in realised inflation outcomes over the next couple of quarters will ease concerns that the labour market is a source of inflation risk and provide space to ease policy to preserve full employment.’
NAB has revised its forecasts to have the Reserve Bank cutting rates after Easter instead of February. Pictured is a Sydney branch
Australian borrowers are missing out on relief even though rates have this year already been cut in the U.S., UK, Canada, European Union and New Zealand.
Canada has cut rates four times this year, and its policy rate of 3.75 per cent is 60 basis points lower than Australia’s equivalent level of 4.35 per cent.
But RBA Governor Michele Bullock has ruled out any relief by Christmas, with NAB arguing her board was in no rush to cut rates.
‘While we expect rates will move lower over time, because the RBA’s policy stance is only modestly restrictive there is little urgency to adjust policy settings while both inflation and the unemployment rate are evolving gradually,’ Mr Oster 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.’
As recently as October, the futures market was predicting four rate cuts in 2025.
But it is now only expecting one cut in July next year followed by another in April 2026.
The Reserve Bank’s next announcement is on December 10.
NAB changed its forecasts on the same day it slashed variable mortgage rates by 40 basis points, to 6.44 per cent.
Competition is still fierce among the big banks even if there’s no relief from the RBA for possibly another six months.
