The National Australia Bank (NAB) has joined its major competitors in adjusting its forecast for the first Reserve Bank of Australia (RBA) interest rate cut, now expecting a reduction in February 2025. This revision comes amid signs of cooling inflation, offering potential relief for mortgage holders.
Inflation Data Supports Earlier Rate Cut
Australia’s consumer price index (CPI) for the December quarter revealed an annual inflation rate of 2.4%, its lowest in three years. This decline, alongside softer underlying inflation figures, has prompted NAB economists to bring forward their expectations for a 25 basis point rate cut at the RBA’s first policy meeting of the year.
“We now expect the RBA to cut the cash rate by 25 basis points in February,” NAB chief economist Alan Oster stated in a note. He explained that the inflation data had moderated more quickly than anticipated, making an earlier easing of monetary policy more likely.
NAB’s revised projection aligns with those of other major banks, all of which now foresee an interest rate reduction in February.
Impact on Mortgage Repayments
If the RBA moves forward with the expected rate cuts, mortgage holders could see a reduction in monthly repayments. According to economist Stephen Koukoulas, every 25 basis point cut equates to an estimated $96 per month in savings on a $500,000 mortgage. A series of four such cuts could reduce payments by $385 per month.
With one in ten mortgage holders expressing concerns about being forced to sell their homes if rate cuts are delayed, an earlier reduction may provide financial relief.
How Major Banks See the Interest Rate Path
Each of Australia’s big four banks has now shifted its projections toward an initial February 2025 rate cut, although their expectations for the extent of reductions vary:
- Commonwealth Bank: Four rate cuts, reducing the cash rate to 3.35% by the end of 2025.
- Westpac: Four rate cuts, bringing the cash rate to 3.35% by the end of 2025.
- NAB: Five rate cuts, reaching 3.10% by February 2026.
- ANZ: Two rate cuts, lowering the cash rate to 3.85% by the end of 2025.
These forecasts mark a shift from earlier expectations. In November, Westpac and ANZ had delayed their rate cut outlooks to May 2025, but both have since returned to the February timeline.
Market Expectations and RBA Policy Outlook
The latest inflation report has reinforced expectations that the RBA will begin easing monetary policy sooner rather than later. Westpac chief economist Luci Ellis, formerly an RBA assistant governor, noted that inflation data had been the decisive factor in revising their forecast.
Similarly, Commonwealth Bank’s head of Australian economics, Gareth Aird, described the data as a “green light” for a February rate cut, emphasizing that inflation was softer than the RBA’s previous projections.
Beyond February, the RBA’s approach is expected to remain gradual, with economic indicators such as employment data and global financial trends playing a role in determining future cuts. Bendigo Bank’s forecast suggests three cuts in 2025, with a second reduction likely in May if inflation remains stable.
Meanwhile, financial markets are now pricing in a 75% chance of a rate cut in February, reflecting increasing confidence in a shift toward lower borrowing costs.
