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The big four bank has broken from the pack in revising its rate cut forecast.
National Australia Bank (NAB) has revised its interest rate forecast, reverting to its earlier position of a first cut occurring in May 2025.
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The major bank had previously pulled its rate cut call forward to February 2025, noting an improved “balance of risks around the inflation outlook” at the end of September this year.
But the big four bank has since revised its position, citing a stronger-than-expected labour market and the limited data available to the Reserve Bank of Australia (RBA) before its 18 February meeting, when a decision on a February rate cut would occur.
There are only two more employment prints and one quarterly Consumer Price Index (CPI) due before the central bank meets in February.
In a NAB Economics release, the major said it was likely the RBA would see “little urgency to adjust policy settings while both inflation and unemployment are evolving gradually”.
After a first cut in May 2024, the big four bank expects a “steady profile” of one cut per quarter back to 3.10 per cent by mid-2026.
“On 30 September, we pulled our rate call forward to a first cut in February. We did that expecting an improving balance of risks around the inflation outlook would bring a rate cut into view sooner,” the bank’s statement said.
“While Q3 CPI data was as expected, we have been surprised by resilience in labour market indicators. It remains our view that the unemployment rate will rise a little further before stabilising around 4 1⁄2 per cent in mid-2025, broadly in line with the RBA’s November forecast track.
“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.”
Focus turns to majors
The revised call makes NAB the first major bank to break from the pack with its projections for an interest rate cut and borrowers will likely be eager to see if other members of the big four follow suit.
In a market update last week, ANZ senior economist Adelaide Timbrell remained consistent with the bank’s forecast for a February cut.
“We still expect the first rate cut to occur in February 2025, with risks tilted to a later start to the easing cycle,” Timbrell said.
“While the labour market is still resilient, the very slight easing this month as well as the lower-than-expected wage print yesterday may make it easier for the RBA to start unwinding the restrictiveness of the cash rate.”
Westpac economic spokesperson Luci Ellis shared a similar statement in early November, saying the RBA’s December board meeting will likely come too soon for a rate cut.
“But by February we think the RBA will have seen enough to be confident that inflation is declining and will be sustainably in the target band on the trajectory that it is currently forecasting,” Ellis said.
In a labour market update, Commonwealth Bank economist Belinda Allen said much will depend on the job market that continued to hold “better than expected”.
“For a February rate cut to occur the RBA will likely need to see a further lift in the unemployment rate from 4.1 per cent and moderation in trimmed mean CPI,” Allen said.
NAB cuts base variable rate out of cycle
Last week also saw the major bank cut its base variable rate home loan by 40 basis points (bps) to 6.4 per cent per annum.
This cut represented NAB’s first to its base variable rate this year, after raising it by 25 bps last November.
Rachel Wastell, spokesperson for comparison site Mozo, said this cut could be interpreted as a “strategic move” from the major.
“This substantial, out-of-cycle cut could be NAB’s response to intensifying competition between the Big Four banks, two of which are offering low rate digital-only home loan options for borrowers,” Wastell said.
“NAB’s new low rate is also being offered to borrowers with a maximum loan-to-value ratio (LVR) of 95 per cent, so even those with a very low deposit can benefit.
“[Last week’s] cuts look to be a strategic move from NAB, making it more competitive with the digital-only offers launched by CommBank and ANZ Plus, while still offering borrowers the benefit of in-person service.”
[Related: RBA unlikely to cut the cash rate this year, say economists]
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