Three of Australia’s four largest banks now agree on when the Reserve Bank of Australia (RBA) is likely to start cutting the cash rate from its current level of 4.35 per cent, although this consensus has only begun to take shape in recent weeks.
The latest bank to adjust its forecast is National Australia Bank (NAB), which now anticipates the RBA will begin cutting rates in February 2025, moving the timeline up from May 2025.
“From there, we continue to see a steady profile of one cut per quarter back to 3.10 per cent in early-2026,” NAB’s economics team said in a statement on Monday.
While acknowledging that domestic inflation pressures are cooling, the bank conceded that this process is still gradual and maintained that the conditions for a rate cut are unlikely to be in place before the end of the year.
“The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected. It remains our view that RBA cuts will be later and shallower than many peer central banks.”
Australia’s largest bank, however, remains an outlier, expecting fiscal policy easing, among other data, to lead the RBA to cut rates this year.
The bank, which earlier predicted a rate cut would take place in November, said recently that the strength in employment growth, coupled with still relatively hawkish rhetoric from the RBA governor, means “we now see December as the more likely month for the start of normalising the cash rate”.
“The August labour market data was stronger than we expected,” the bank’s economist, Gareth Aird, said.
“Put another way, the recent strength in the labour market data means a Q3 24 trimmed mean CPI in line with our forecast is unlikely to be sufficient for the RBA to be willing to cut the cash rate in November.”
Instead, Aird now believes that by December, the RBA will have a comprehensive view of relevant data, including the quarterly inflation figures, for their decision making.
“We now believe this fuller suite of data will need to be seen and assessed by the RBA Board for it to be willing to join a host of other central banks in cutting rates in 2024,” the economist said.
Westpac and ANZ hold the course
Australia’s third and fourth largest banks have not tinkered with their forecasts for some time, with both predicting the central bank will pivot to cuts in early 2025.
Following the RBA’s latest monetary policy decision, Westpac chief economist Luci Ellis said this week that it does not see a reason to change its current view.
“The RBA will remain on hold this year and start lowering the cash rate from February. There are uncertainties around this if events should turn out very differently than expected. Overall, though, we see the RBA Board as a bit more firmly on hold than last month,” Ellis said.
A key – and promising – development, she noted, is that the RBA is no longer citing unsustainable wages growth in its media statements.
While Westpac expects the cash rate to reduce to 3.35 per cent at the end of next year, ANZ forecasts a less aggressive cutting cycle.
“The RBA’s focus, going forward, will be firmly on the trimmed mean measure of inflation,” ANZ said earlier this month.
“We expect the first cut will be in February 2025, with the cash rate to end that year at 3.60 per cent, marking the low for the cycle.”
It added that risks surrounding the timing of the rate cut cycle currently seem skewed towards a later start.
CBA is the most optimistic of the bunch when it comes to the number of cuts it expects the RBA to implement next year. Namely, according to Aird, the central bank will make five 0.25 per cent rate cuts, taking the cash rate down to 3.10 per cent by the end of 2025.
