NAB expects 50 bps cut in May and the sam by August it said Monday.
One of Australia’s Big Four banks has reaffirmed a massive interest rate call just 48 hours after Labor’s historic election win.
National Australia Bank expects the equivalent of four rate cuts to be put in place by the Reserve Bank by August – the biggest chunk of which will come within weeks.
The NAB Economic Update, released Monday, flagged a whopping 100 basis point cut to interest rates by August, with 50 bps on May 20.
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Change in real cash rate percentage. Source: NAB
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NAB group chief economist Sally Auld, who first tipped a May 50bp cut in April, said on Monday that “if the RBA knew on 1 April what it knows today, it is likely that the Board would have decided to lower the cash rate by 25bp at the last meeting and followed up that easing up with a 25bp rate cut in May. There is thus some catch up required to align policy settings with recent developments.”
“We forecast 100bp of easing by August 2025, beginning with 50bp rate cut in May. Indeed, the RBA has historically shown a willingness to respond quickly to offshore shocks.”
It said the easing cycle the bank is forecasting “would look very similar to those which responded to the GFC, and the COVID-19 pandemic”
Labor’s big spending plans will add to RBA discussions on May 20. Picture: NewsWire / Nikki Short
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“Price data for 1Q 2025 show both headline and core inflation in the RBA’s 2-3pc target band, and importantly, ongoing disinflation in the market services portion of the CPI basket. This should ease any lingering concerns the RBA has about the inflationary impact of current labour market dynamics”.
“With the current setting of monetary policy restrictive in both a nominal and real context and recent developments shifting the distribution of risks around domestic growth and the labour market to the downside, we think the RBA will see a need to take policy to a more neutral stance relatively quickly.”
She said Aussie voters returned the ALP government with a larger than expected majority in the House of Representatives which in near term means “simply that the ALP’s position as the party of government is now more secure, and its ability to execute on its agenda will be easier. This provides financial markets with more certainty and predictability.”
Real cash rate. Source: NAB & Bloomberg
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“The government is likely to take the election result as a strong mandate and we would expect that the government’s share of economic activity in Australia will likely increase over the next three years.”
NAB said Australia had transitioned from “a multi-decade economic and political regime based on free trade and free markets to one where the role of government is bigger and broader than was the case in the prior regime”.
NAB has cut its 2025 GDP forecast by 25bp to 2pc and lifted Australia’s forecast peak unemployment rate from 4.2pc to 4.4pc.
It has some praise for policymakers handling of global and domestic circumstances too: “If we can realise outcomes close to these forecasts then policy makers will have done a good job navigating what is a difficult global backdrop”.
The bank feels Australia will be somewhat sheltered from US President Donald Trump’s tariff wars given “our limited export basket to the US (less than 5pc of total exports)”.
English (US) · 