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NAB pushes out first rate cuts to May 2025

After yesterday’s shock CPI, NAB has pushed out its first rate cut call to May 2025, as the “lower for longer” strategy plays out, adding there is a possibility the Board may pivot and raise rates at its August meeting but that path will be solely determined by the Q2 inflation print on 31 July.
NAB Markets Research
27 June 2024
Created by potrace 1.15, written by Peter Selinger 2001-2017 3 min read

Alan Oster | Group Chief Economist Group Economics

NAB Monetary Policy Update, 26 June 2024

Key points:

  • We now expect the RBA to remain on hold for longer, with a first rate cut now unlikely until May 2025 (previously November 2024). From there we see a steady profile of one cut per quarter back to 3.10%, now reaching that point in mid-2026.
  • Economic growth has slowed significantly over the past year as the effects of monetary policy have flowed through, and the labour market has started gradually easing. However, progress on inflation has been slower than we (and the RBA) had expected with the May Monthly CPI indicator signalling upside risk pointing to our expectation for a Q2 trimmed-mean print of 0.9% q/q and 3.9% y/y.
  • The mix of slow growth and gradual progress on inflation reflects the RBA’s decision to embrace a “lower for longer” approach – a lower rate peak compared to other advanced economies, resulting in a longer period at that peak. It is possible the Board will change course and raise rates at its August meeting (especially if the Q2 print exceeds expectations) but with the labour market easing we don’t believe their hand will be forced.
  • Instead, we expect the Board will remain on hold with inflation still likely to slow in H2 alongside further easing in the labour market. However, we believe it will be some time before the Board has the confidence to begin to ease policy settings – likely only after several quarters of inflation annualising around the top of band. This may be in hand by February but we see May, after the Q1 2025 CPI, as most likely.
  • Inflation should continue to moderate towards the mid-point of the RBA’s target range through 2025 and 2026, though the path will likely be uneven. This will see the focus shift back towards growth and the labour market, leading the RBA to continue bringing the cash rate back towards a more neutral level, which we see as around 3%. A slower pace of cuts, or higher end point, remains possible.

View the full report here

 

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All prices and analysis at 26 June 2024.  This information has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB"). The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer.  This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice.  Past performance is not a reliable indicator of future performance.  Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB.  Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.

 

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