The big four bank has reverted to its previous forecast of a May 2025 cash rate cut, three months later than its recent prediction of February 2025. 

Its retraction comes on the back of stubborn employment figures released on Thursday morning showing the labour market isn't cooling as fast as was once expected.

"There are only two more employment prints and one quarterly [Consumer Price Index print] before the [RBA board's] February 18 meeting," NAB's economics team said on Thursday.

"Given the data flow to date, it now looks unlikely the RBA will have enough confidence in the trajectory of inflation by then."

The bank also flagged a "real risk" that home loan interest rates could remain high beyond May, with a chance the first rate cut could come in mid-to-late 2025.

Though, it still predicts home loan borrower's budgets could be bolstered by one cut per quarter following the RBA's first downwards move, potentially leaving the cash rate at 3.10% by mid-2026.

"While we expect rates will move lower over time, because the RBA's policy stance is only modestly restrictive there is little urgency to adjust policy settings while both inflation and the unemployment rate are evolving gradually," NAB economists said.

It expects the unemployment rate to rise slightly in the coming months, lifting from 4.1% in October to around 4.5% by mid-2025.

Such a change could be expected to ease the minds of the RBA board, perhaps suggesting the labour market isn't likely to further drive inflation.

The latest inflation data showed the Consumer Price Index – a measure of the cost of a set basket of goods – rose just 2.8% over the year to the September quarter, as per the Australian Bureau of Statistics (ABS).

However, underlying inflation, the RBA's preferred measure that strips out items with volatile prices, remained at 3.5% – half a percent above the central bank's target range of 2% to 3% annually.

"While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high," the central bank said in the wake of its November meeting, wherein it chose to keep the cash rate at its 13-year high of 4.35%.

NAB more pessimistic than big four peers

NAB's retraction sees it once again the most pessimistic of the big four banks when it comes to potential interest rate cuts.

ANZ and Westpac have been anticipating a February 2025 rate cut since June and August respectively, while CommBank delayed its forecast to February late last month.

Despite its new view, NAB slashed variable home loan rates on Thursday.

It now advertises interest rates from 6.44% p.a. on its Base Variable Rate Home Loan product, which charges no ongoing fees but doesn't offer an offset account.

Image by Bahnfrend on Wikimedia Commons

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