The National Australia Bank (NAB) has adjusted its monetary policy outlook, now predicting that the Reserve Bank of Australia (RBA) will not cut interest rates until May 2025.
This marks a shift from its earlier forecast of a February 2025 rate cut, which had aligned with predictions from other major banks like Commonwealth Bank, Westpac, and ANZ.
NAB’s decision to push back its forecast comes after the release of recent employment data, which showed that Australia’s labor market remains resilient. The unemployment rate has held steady at 4.1% for three consecutive months, with October seeing an addition of 15,900 jobs.
This stronger-than-expected labor market performance has led NAB to believe that the RBA will take a more cautious approach before easing monetary policy.
Why Has NAB Changed Its Forecast?
NAB’s revised outlook is driven by several key factors:
- Labor Market Strength: The Australian labor market has shown surprising resilience, with unemployment remaining low and job growth continuing. This has raised concerns about potential inflationary pressures if wage growth accelerates.
- Inflation Concerns: While headline inflation for the September quarter came in at 2.8%, within the RBA’s target range of 2-3%, underlying inflation remains elevated at 3.5%. The RBA has consistently stated that it will not cut rates until inflation is sustainably within its target range.
- Data-Dependent Approach: The RBA has emphasized a data-driven approach to monetary policy. With only two more employment reports and one quarterly inflation reading before its February meeting, NAB believes there may not be enough evidence to justify a rate cut early in the year.
Impact on Mortgage Holders
For mortgage holders, this delay in rate cuts could mean higher interest payments for longer. Canstar estimates that a borrower with a $600,000 mortgage could pay an additional $1,872 in interest over the next two years if rate cuts are delayed until May instead of February.
Sally Tindall, Data Insight Director at Canstar.com.au, advises homeowners not to rely on forecasts and suggests exploring options such as refinancing or negotiating better rates with their lenders. “If you’ve got a mortgage, don’t bank on a rate cut until it hits your bank account,” she said.
Other Banks Still Predicting February Cuts
Despite NAB’s more cautious outlook, Australia’s other Big Four banks—Commonwealth Bank, Westpac, and ANZ—are still forecasting that the RBA will begin cutting rates in February 2025.
These banks expect multiple rate cuts throughout the year, potentially bringing the cash rate down to between 3.35% and 3.60% by the end of 2025.
However, NAB’s economists caution that there is a real risk that policy rates could remain unchanged even deeper into 2025 if inflationary pressures persist or if the labor market continues to perform strongly.
RBA’s Stance on Monetary Policy
The RBA has maintained its cash rate at 4.35% since November 2023 after raising it 13 times between 2022 and 2023 to combat rising inflation. The central bank has made it clear that any decision to cut rates will depend on sustained improvements in inflation data and further cooling in the labor market.
In its November statement on monetary policy, the RBA reiterated that while headline inflation has fallen due to temporary factors like government subsidies on energy and fuel, underlying inflation remains too high. The central bank aims to bring inflation back into its target range of 2-3%, but this process is expected to take time.
What’s Next for Interest Rates?
Looking ahead, much will depend on upcoming economic data releases:
- Inflation Data: The next quarterly inflation figures will be released on November 27.
- Retail Trade Data: Retail figures are due on December 2.
- GDP Data: The latest GDP figures will be published on December 4.
These data points will play a crucial role in shaping the RBA’s decisions at its first meeting of 2025 in February.
In conclusion, while NAB’s updated forecast suggests that mortgage holders may have to wait longer for relief from high interest rates, much depends on upcoming economic data and how quickly inflation moves back into the RBA’s target range.
For now, homeowners are advised to stay informed and explore options like refinancing to manage their financial situation effectively.