National Australia Bank (NAB) has predicted multiple interest rate cuts in the coming months. The forecasted cuts could provide relief to homeowners struggling with higher mortgage repayments. Sally Auld, NAB’s chief economist, stated that the Reserve Bank of Australia (RBA) is expected to reduce rates by 100 basis points in total by August. This would be followed by additional cuts by the end of the year. NAB’s prediction has raised expectations of a more favourable financial environment for homeowners.
Interest Rate Reduction Timetable
The forecast suggests a 50 basis point (bps) cut in May, followed by 25bps cuts in July, August, November, and February. These adjustments would lower the official cash rate from 4.10 per cent to 3.10 per cent by mid-August. By the end of the year, NAB expects the rate to fall further to 2.85 per cent, with a final reduction to 2.60 per cent in February 2026.
Auld highlighted the necessity for the RBA to revise its approach to economic policy. She pointed out that inflation risks are now biased to the downside due to factors such as trade diversion and weaker global growth. NAB’s outlook also hinges on the RBA adopting a more flexible stance on monetary policy, allowing for quicker and bolder actions.
Cash Rate Target over the years
Recent Inflation Trends Support Rate Cuts
Recent data from the Australian Bureau of Statistics revealed that underlying inflation has entered the RBA’s target range for the first time since late 2021. This shift supports the argument for rate cuts. NAB noted that the RBA must adjust its policy stance in light of this new economic reality.
The 2022 federal election result, which saw the Labor Party secure a landslide victory, adds more certainty to the economic environment. NAB noted that the Labor government’s position is now more secure, which could enable a more predictable economic agenda. This, in turn, provides greater confidence for markets and businesses.
NAB Revises Global Growth Outlook
Despite optimistic predictions regarding interest rate cuts, NAB has downgraded its global growth outlook. This revision comes amid ongoing trade disruptions caused by US President Donald Trump’s tariffs. These trade shocks have had a significant impact on global economic stability. NAB’s forecast reflects these broader international uncertainties, which could limit Australia’s economic performance.
Bendigo Bank Joins Rate Cut Predictions
Other financial institutions are also predicting rate cuts. Bendigo Bank has forecast four additional cuts, starting with one in May. However, Reserve Bank Governor Michele Bullock urged caution in responding to the “economic volatility” caused by Trump’s tariffs. Bullock has avoided signalling drastic rate cuts, emphasising the need for patience.
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NAB’s Analysis of Economic Conditions
NAB’s forecast aligns with its broader analysis of domestic and global economic conditions. The bank noted that Australia’s economy is undergoing a significant shift. It is moving away from a long-standing free-market, free-trade model towards one where the government plays a more prominent role. NAB believes this transition will have important implications for future economic growth.
While the changes in global trade policy may pose challenges, NAB anticipates that Australia will be somewhat insulated. The country’s limited export exposure to the US—less than five per cent of total exports—could help mitigate the impact of US tariffs.
Australia’s Economic Outlook
NAB has revised its economic projections, lowering its 2025 GDP forecast to 2.0 per cent and raising the unemployment forecast to 4.4 per cent. Despite these revisions, the bank remains optimistic about the Australian government’s ability to manage the global and domestic economic landscape effectively. If policymakers can achieve outcomes close to NAB’s forecast, the bank believes they will have navigated the difficult global environment successfully.
The Path Forward for Australian Mortgage Holders
For Australian homeowners, NAB’s prediction of interest rate cuts is a welcome development. As rates decrease, many mortgage holders can expect lower repayments, which could ease financial pressure. However, the path to rate cuts will depend on the RBA’s ability to adjust its policies in response to shifting inflationary trends and global economic conditions.
In the meantime, the public and markets will continue to monitor the RBA’s actions closely. The upcoming May decision could set the tone for the remainder of the year, with further cuts expected if inflation risks remain subdued.
