Three of Australia’s four largest banks now agree on when the Reserve Bank of Australia (RBA) should start cutting its policy rate from its current level of 4.35 percent, although this consensus has not yet been reached. only started to take shape in recent weeks.
The latest bank to adjust its forecast is the National Australia Bank (NAB), which now expects the RBA to begin cutting rates in February 2025, bringing the timeline forward from May 2025.
“From here, we continue to see a stable profile of a reduction per quarter up to 3.10% in early 2026,” NAB’s economic team said in a statement on Monday.
While acknowledging that domestic inflationary pressures are easing, the bank acknowledged that this process was still gradual and maintained that the conditions for a rate cut were unlikely to be met before the end of the year.
“Risk has been skewed towards a first reduction earlier in 2025, and today’s change recognizes that the balance of risks has likely shifted enough for the RBA to feel comfortable reducing its rate a little earlier than expected. We remain of the view that the RBA’s cuts will be later and shallower than those of many other central banks.
Australia’s largest bank remains an exception, however, expecting, among other things, that easing fiscal policy will lead the RBA to cut rates this year.
The bank, which previously forecast a rate cut in November, recently said that strong jobs growth, coupled with the RBA governor’s still relatively hawkish rhetoric, means that “we now view December as the month most likely for the beginning of the year. normalize the cash flow rate.”
“The August labor market data was better than expected,” said the bank’s economist Gareth Aird.
“In other words, recent strength in labor market data means that a reduced average CPI in Q3 24, in line with our forecasts, is unlikely to be enough for the RBA to be willing to cut its policy rate in November.”
Instead, Aird now estimates that by December the RBA will have a comprehensive view of relevant data, including quarterly inflation figures, for its decision-making.
“We now believe this more comprehensive set of data will need to be reviewed and assessed by the RBA board if it is to be ready to join a host of other central banks in cutting rates in 2024” , said the economist.
Westpac and ANZ stay the course
Australia’s third and fourth largest banks have not changed their forecasts for some time, with both predicting the central bank will turn to cuts in early 2025.
Following the RBA’s latest monetary policy decision, Westpac chief economist Luci Ellis said this week she saw no reason to change her current view.
“The RBA will remain on hold this year and will begin cutting the policy rate from February. There is uncertainty that events may unfold very differently than expected. Overall, however, we view the RBA board as being a little more firmly on hold than last month,” Ellis said.
A key – and promising – development, she noted, is that the RBA is no longer referring to unsustainable wage growth in its media statements.
While Westpac expects the interest rate to be cut to 3.35 per cent late next year, ANZ is planning a less aggressive reduction cycle.
“Going forward, the RBA will focus firmly on the reduced average measure of inflation,” ANZ said earlier this month.
“We expect the first reduction to take place in February 2025, and that the spot interest rate will end that year at 3.60 percent, marking the lowest of the cycle.”
He added that risks surrounding the timing of the rate cut cycle currently appear tilted towards a later start.
The CBA is the most optimistic of the group when it comes to the number of cuts it expects the RBA to implement next year. According to Aird, the central bank will make five rate cuts of 0.25 percent, bringing the cash rate to 3.10 percent by the end of 2025.
