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Lower-than-expected inflation data has prompted another big four bank to move forward its forecast for when the central bank will start the easing cycle.
National Australia Bank (NAB) has updated its cash rate forecast after the new CPI data release, projecting that the Reserve Bank of Australia (RBA) will now start the easing cycle following its meeting next month.
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The major is now forecasting the RBA to cut the cash rate by 25 basis points in February.
The change comes after the latest Consumer Price Index findings, which showed that inflation dropped more than expected over the three months to December 2024.
NAB is the fourth and final major bank to bring forward its cash rate reduction call, mirroring Australia and New Zealand Bank (ANZ), the Commonwealth Bank of Australia (CBA), and Westpac Group (Westpac), which yesterday (29 January) revised its rate call for February 2025.
NAB's group chief economist Alan Oster stressed that he still expected the rate cutting phase to be “gradual”, with the RBA taking the cash rate down to 3.1 per cent by February 2026.
“The Q4 CPI confirms that inflation has moderated more quickly than the RBA expected and sets up a likely downward revision to the inflation profile in the Feb SMP. This now makes February the most likely starting point for a gradual easing in interest rates,” Oster said.
“While the labour market remains strong, we do not see current conditions as inflationary. However, the RBA’s growing confidence will need to come in part from a reassessment of tightness in the labour market,” he added.
Oster reflected that since June, NAB’s view had been that the RBA would cut 75 or 100bp in 2025, beginning in February or May.
“While we have been forecasting inflation would ultimately moderate more quickly than the RBA’s projections and that despite the unemployment rate remaining low, both the labour market and economy had progressed further along the rebalancing process than the RBA had assessed at the November SMP.”
“While we still see value in waiting, the pivot in the RBA’s communication in December, confirmation of weaker than forecast CPI outcome for Q4 and a softer outlook for the housing components of inflation (compared to the November staff forecasts), alongside further encouraging progress on market services, means that we think the RBA will now make the first cut in February,” he concluded.
After the release of new CPI data, both ANZ and CBA reaffirmed their rate cut calls for February, with ANZ senior economist Catherine Birch saying on Wednesday that the trimmed mean annual rate of inflation for December 2024 (3.2 per cent) was below the RBA’s forecast (3.4 per cent).
Following its own rate cut revision, Westpac’s chief economist Luci Ellis said: “It’s on: the better-than-expected inflation data tips the balance back to the February move we had previously expected. RBA’s view of the economy will need to pivot further.”
Other lenders forecasting a rate cut in February include Bendigo Bank and AMP Bank.
Financial markets are now suggesting there is a 95 per cent probability that the RBA will cut rates at the board meeting on 18 February.
[Related: Westpac brings forward rate cut forecast]
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