Due to economic indicators showing that inflation is slowly returning to target, the National Australia Bank (NAB) has brought forward its expectation for the first rate cut by the Reserve Bank of Australia to February next year.

NAB previously predicted that the central bank would not cut rates until May next year.

NAB's adjustment aligns it with ANZ and Westpac, both of which expect the central bank to announce a cut at the first board meeting in February 2025, while CBA expects the central bank to start cutting rates in December this year.

Gareth Spence, head of NAB's Australian economics, expects the rate cuts to be gradual, returning to 3.10% by early 2026. A 3.10% cash rate would mean a 125 basis point decrease in interest rates, equivalent to five 25 basis point rate cuts.

According to an analysis by RateCity.com.au, a 50,000 AUD loan could save 75 AUD per month with each rate cut, and a 100,000 AUD loan would save 149 AUD.

The Reserve Bank of Australia removed explicit consideration for further rate hikes at its September meeting, noting that the current cash rate level is sufficient to balance the risks of inflation returning to target for a longer period than expected and the risks of a greater downturn in the labor market.

Advertisement

Spence said the central bank would not be able to lower the official cash rate in November or December, as inflation would still be too high at that time, and other indicators point to supply and demand imbalances.NAB has indicated that the third-quarter inflation data to be released at the end of this month will be influenced by subsidies such as state and federal electricity bill rebates, but the details should reveal a steady progress in inflation, with the core rate excluding volatile components expected to record an annual increase of 3.5%.

The rise in unemployment is primarily supply-driven, while job growth remains robust. The bank anticipates that this trend will continue in the coming months before stabilizing around 4.5% by 2025.

On this trajectory, the labor market will not act as an impediment for the Reserve Bank of Australia (RBA) to initiate a rate-cutting cycle, but NAB also states that it will not create pressure for a rapid easing of policy settings.