Major bank makes big call on interest rates – here’s when home borrowers can expect some relief

A major bank has now revised its interest rate forecasts, allowing the Reserve Bank to provide relief in February.

NAB, Australia’s largest business lender, on Monday adjusted its forecasts for RBA rates to fall in February instead of May.

This would bring the cash rate down from the existing 12-year high of 4.35 percent to 4.1 percent after the summer break.

This would save $105 on monthly payments on an average mortgage of $641,000.

The National Australia Bank also cut rates by 25 basis points each quarter of 2025 until the cash rate fell to 3.1 percent in early 2026 for the first time since February 2023.

NAB economists Alan Oster and Gareth Spence said it was too early to predict a rate cut in 2024 as it took some time for inflation to moderate.

“Domestic inflation pressures are easing, but only gradually, and we continue to expect that the conditions for a reduction will not be in place this year,” they said.

“The risk has shifted to a first cut earlier in 2025, and today’s change recognizes that the balance of risks has likely shifted enough that the RBA feels comfortable making cuts a little earlier than we previously expected.”

NAB has updated its forecasts 11 days after the Commonwealth changed its forecasts to have RBA rates cut in December instead of November.

Reserve Bank Governor Michele Bullock stressed earlier this month that interest rates are unlikely to be cut in 2024 because inflation is still too high.

But after last week’s meeting, she admitted there was no rate increase this time.

“We did not explicitly consider a rate increase at this meeting,” Ms. Bullock told reporters.

Treasurer Jim Chalmers welcomed the change in language, despite previously accusing it of “destroying the economy” with interest rate hikes.

“I think it’s a very good development that the governor of the Reserve Bank is a more prominent voice in the national economic debate,” he told reporters on Monday.

NAB, Australia’s largest business lender, updated its forecasts on Monday to see RBA rates fall in February instead of May

“I try to allow the governor of the Reserve Bank to speak for herself and on behalf of its board, and I respect and cherish her independence and I try not to second-guess the decisions that the Reserve Bank makes independently.”

A 25 basis point interest rate cut would cause the average monthly mortgage payment and mortgage to drop by $105 from $4,048 to $3,943.

The RBA’s thirteen rate hikes in 2022 and 2023 were the most aggressive since the late 1980s.

Headline inflation fell to 2.7 per cent in August, falling within the Reserve Bank’s target of 2 to 3 per cent for the first time since August 2021, when Sydney and Melbourne were in lockdown.

But the underlying inflation measure, which ignores volatile price components, came in at 3.4 percent because it excluded the one-time effect of $300 energy rebates from the federal government.