Bad news for borrowers as big NAB makes big decision

Australian home borrowers could wait until May next year for a rate cut, a major bank says.

NAB has revised its forecasts for the Reserve Bank to cut rates after Easter instead of in February.

Chief economist Alan Oster said a May rate cut was now more likely because the Reserve Bank was concerned about labor costs keeping inflation high.

“The labor market is stronger than expected and the RBA remains concerned about upside risks to inflation if the gradual cooling of the labor market stalls and capacity growth remains sluggish,” he said.

The 30-day interbank futures market now expects just one cut in the RBA rate in 2025, from the existing level of 4.35 percent.

But NAB is certainly more optimistic, predicting three rate cuts next year, which would see Reserve Bank rates fall to 3.6 percent for the first time since May 2023.

National Australia Bank updated its forecasts on Thursday, just six weeks after revising its forecasts to cut rates in February instead of May.

Australia’s other Big Four banks – Commonwealth, Westpac and ANZ – still expect a rate cut in February.

Australian home borrowers could wait until May next year for a rate cut, a major bank says. The photo shows shoppers at Pitt Street Mall in Sydney

This would mark the first easing of monetary policy since November 2020, and see the RBA reverse its thirteen increases in 2022 and 2023.

Overall 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 such as $300 electricity rebates and cheaper petrol prices.

Underlying inflation, which strips out volatile price components, was higher at 3.5 percent and above the Reserve Bank’s target of 2 to 3 percent.

Services inflation was even higher at 4.6 percent, meaning domestic factors are now the main driver of higher prices rather than global supply constraints.

While wage growth has slowed to 3.5 percent, unemployment remains low at 4.1 percent, with a further 36,800 jobs created in October.

NAB predicted that inflation pressures would only ease if unemployment rose to 4.5 percent.

“Inflation data shows continued pressure in components sensitive to domestic demand and labor costs,” Oster said.

“A further cooling in the labor market and evidence of further progress in realized inflation rates in coming quarters will allay concerns that the labor market is a source of inflation risk and provide scope for policy easing to maintain full employment.”

Australian borrowers are missing out on relief, even though rates have already been cut this year in the US, UK, Canada, European Union and New Zealand.

As recently as October, the futures market predicted four interest rate cuts in 2025.

But the country now expects just one cut in July next year, followed by another in April 2026.

NAB has revised its forecasts for the Reserve Bank to cut rates after Easter instead of in February. Pictured is a branch in Sydney