NAB Economics has adjusted its forecast for interest rates, expecting that the Reserve Bank of Australia (RBA) will expedite easing through the middle of 2025, aiming for a cash rate of 2.6% by February 2026.
The revised projection includes a 50 basis points cut in May, followed by 25 basis points reductions in July, August, November, and February 2026.
In the latest update to its Monetary Policy, NAB Chief Economist Sally Auld noted that the decline in domestic and global growth since the RBA's last meeting in April means a restrictive policy is no longer suitable for Australia.
“Headwinds from the global environment have intensified, but error bounds around our forecast are large given uncertainty remains exceptionally elevated,” Dr. Auld stated.
“Our call for a 50bps easing in May reflects the fact that with the real cash rate of 1.3% and policy currently restrictive, the RBA needs to play catch up."
She further explained, “Once the cash rate reaches a level more consistent with a neutral policy setting, we then expect the RBA to pause for a few months before taking the cash rate into modestly accommodative territory.”
Additionally, NAB Economics has adjusted its expectations for the unemployment rate and economic growth for 2025. Dr. Auld indicated that a more significant policy response is necessary to maintain economic activity.
“A weaker global backdrop and the impacts of weaker consumer and business confidence have now shifted the distribution of risks away from a tighter labour market and towards the risk of a rise in the unemployment rate,” she commented.
“We now see GDP growth of 2.0% over 2025 (was ~2.25%) and see the unemployment rate peaking slightly higher at around 4.4% before edging back down to around 4.25% at end 2026.”
Read the full Monetary Policy Update here.