Major bank doubles down on supersized RBA interest rate cut call: ‘Catch up'

Yahoo

05-05-2025

NAB has doubled down on its prediction that the Reserve Bank of Australia (RBA) will fire off a double interest rate cut at its May meeting in a few weeks' time. The major bank is expecting five cuts are still to come in this rate-cutting cycle, with the central bank needing to 'catch up' with recent global developments.
NAB expects the RBA will cut the cash rate by 50 basis points in May, followed by 25 basis point cuts in July, August, November and February. This would take the cash rate down to 2.60 per cent and shave an estimated $526 off monthly repayments for the average $600,000 loan.
NAB chief economist Sally Auld said RBA needs to take policy to a more neutral stance 'relatively quickly'.
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'There is thus some catch up required to align policy settings with recent developments … Indeed, the RBA has historically shown a willingness to respond quickly to offshore shocks.'
The major bank noted its forecasts would look 'very similar' to how the RBA responded to the Global Financial Crisis and the COVID-19 pandemic.
Auld noted the latest inflation data showed both headline and core inflation were within the RBA's 2 to 3 per cent target band.
'This should ease any lingering concerns the RBA has about the inflationary impact of current labour market dynamics,' she said.
Auld acknowledged the RBA would need to 'shift its thinking on a couple of fronts' for its call to eventuate.
That includes acknowledging the risks to inflation were no longer balanced, taking a "less cautious approach" to policy and showing 'a willingness to act quickly and boldly".
The major bank has revised its GDP forecast down by 25 basis points to 2 per cent and lifted its forecast peak in the unemployment rate from 4.2 to 4.4 per cent.
A 50 basis point rate cut in May would save the average borrower $181 on their repayments based on a $600,000 loan with 25 years remaining, according to Canstar.
A drop of 1.50 per cent by March 2026, as NAB has predicted, would lower repayments by $526 for the same borrower.
Commonwealth Bank, Westpac and ANZ expect the RBA will cut interest rates by the standard 25 basis points in May.
CBA head of Australian economics Gareth Aird said the latest inflation data was 'a touch firmer' than it expected and a May cut, though likely, was 'not a done deal'.
'The case to normalise the cash rate to a more neutral setting remains, but we maintain that the Board will take a gradual approach in cutting rates despite CBA recently downgrading its forecast for the global economy,' he said.
'We retain our base case that the pace of easing is likely to be gradual and we continue to expect one 25 basis rate decrease each quarter in 2025 for an end year cash rate of 3.35 per cent.'
Westpac economist Justin Smirk said the inflation data also exceeded its expectations but had not impacted its base case for a May rate cut.
'Westpac Economics expects three more rate cuts totalling 75 basis points, including one in May, with additional cuts expected in August and November,' he said.
ANZ senior economist Adelaide Timbrell said the trimmed mean inflation data had cleared the way for a 0.25 per cent cut in May.
"We view an RBA rate cut of 25 basis points in May as a near certainty, given the downside risks to global and domestic growth stemming from global trade policy uncertainty and the inflation outcomes over the past two quarters,' she said.
ANZ economists are expecting three cuts in May, July and August.Sign in to access your portfolio