The banking giant now expects the RBA to begin lowering the cash rate in February 2025 - three months earlier than its previous prediction.

"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," a note from NAB's economic division, released Monday afternoon, reads.

"Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year."

See also: NAB slashes more home loan interest rates to under 6%

NAB's prediction is now in line with forecasts from Westpac and ANZ.

CommBank experts, meanwhile, are holding out hope of a 2024 rate reduction, tipping a cut at the board's December meeting.

CommBank head of Australian economics Gareth Aird admitted its long-standing forecast for a November cut appeared too hopeful last week.

Inflation to ease in 2025: NAB

The RBA board emerged from its September meeting on Tuesday, 24 September, announcing it doesn't expect inflation to sustainably reach its target range of 2% to 3% until 2026.

"Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range," it said in a post-meeting statement.

However, the RBA board likely won't wait for inflation to drop into its target range before it cuts.

"We expect by February the RBA will have seen enough to conclude that excess demand is receding as an inflation driver and policy can begin to adjust away from modestly restrictive settings," NAB said.

The bank today noted that inflation is being supported by the cost of housing, the strength of the labour market, and sustained price growth in the domestic market.

"We expect cost drivers to fade as capacity constraints ease further, and soft demand growth to inhibit passthrough to end consumer prices," it said.

It tips underlying inflation - the RBA's preferred data point - to rise 2.6% over the course of 2025 as households tighten their purse strings to combat continued cost-of-living challenges.

For comparison, the bank forecasts inflation will lift 3.5% in 2024.

Such easing would likely help pave the way for a barrage of cash rate cuts next year.

What would NAB's predicted cash rate cuts mean for mortgage holders?

NAB expects that, once the RBA begins its cutting cycle, it will shave a total of 125 basis points off the cash rate, cutting once per quarter until it reaches 3.10% in early 2026.

Of course, the cash rate has a major influence on interest rates.

Lenders typically hike and cut the interest rates charged to borrowers in line with RBA movements.

As per the RBA's latest data, the typical outstanding variable rate home loan boasted an interest rate of around 6.40% p.a.

Such a rate would see the repayments on a $500,000, 25-year home loan come in at around $3,345 per month.

If that rate were to be cut by 125 basis points to 5.15% p.a., the repayments on that same mortgage would fall by nearly $380 to approximately $2,967 per month.

See how a rate cut would impact your repayments: Mortgage Repayment Calculator

Image courtesy of NAB

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