Homeowners looking to start the new year with some extra cash have been dealt a devastating blow when one of the country’s big four banks warned that a rate cut could take another six months.
National Australia Bank – and its main rivals – had all tipped the Reserve Bank of Australia is expected to cut the official cash rate at its first meeting of 2025 in February.
But the NAB revised its forecast late this week it now believed that the central bank would not cut rates until May.
“The labor market was stronger than expected and the RBA remains concerned about upside risks to inflation if the gradual cooling of the labor market stalls and capacity growth remains sluggish,” NAB said in its updated monetary policy published on Thursday.
‘On September 30, we brought forward our interest rate call to a first cut in February.
‘We did this in the expectation that an improving risk balance around the inflation outlook would bring an interest rate cut into view sooner.
Australian homeowners would have to hold out for another six months before seeing a rate cut
National Australia Bank had initially forecast a decline in February but revised its forecast
“While the third quarter CPI data was as expected, we are surprised by the resilience of labor market indicators.
‘We remain of the view that the unemployment rate will rise slightly further before stabilizing around 4.5 per cent by mid-2025, broadly in line with the RBA’s forecast trajectory in November.’
The NAB’s revised forecast will not be well received by the Albanian government, which had hoped that inflation would be curbed and interest rates would fall before elections in May next year.
The RBA has one more meeting this year, and then three in the first half of next year: February 17-18, March 31/April 1 and May 19-20.
The central bank has said that lower inflation must remain consistently within the target range of 2-3 percent before an interest rate cut can take place.
While headline inflation for the September quarter for the year was 2.8 percent – within the central bank’s target of 2-3 percent – this was largely due to government subsidies on energy and fuel.
The underlying inflation rate the RBA is looking at was 3.5 percent.
Those struggling to meet their mortgage payments haven’t had a break in four years
Despite NAB’s grim forecast, Australia’s other Big Four banks – Commonwealth, Westpac and ANZ – are still predicting a rate cut in February.
Regardless of when the RBA decides to make cuts, the announcement will mark the first monetary policy easing since November 2020.
The RBA has yet to relent on its policy, having raised rates thirteen times between 2022 and 2023 and has now kept interest rates at 4.35 percent for a full year.
Canstar Data Insight Director Sally Tindall said it may seem like a minor overhaul by NAB, but if the bank was right it could cost homeowners thousands.
‘Our research shows that the average owner-occupier with a debt of €600,000 and 25 years to go will end up paying almost €2,000 extra in interest over the next two years as a result of a start of interest rate cuts in May, rather than from in February,” she said. .
“This change is a good reminder of how many balls are still in the air at this stage, especially for a data-reliant central bank.
‘If you have a mortgage, don’t count on an interest rate reduction until it hits your bank account. If you want an interest rate reduction sooner, go out on your own by negotiating or refinancing.”
Ms Tindall warned homeowners not to get too stressed – or excited – about any forecast until the RBA makes an official announcement.
Data Insight Director Sally Tindall says it’s difficult to put too much faith in long-term forecasts
“The new year may be fast approaching, but the timing of the first rate cut is still incredibly gray,” Ms Tindall said.
‘Unemployment has been flat for three months in a row, giving the RBA the green light to keep the cash rate at 4.35 per cent for the time being, especially as underlying inflation remains well above the bank’s target of 2 to 3 per cent is. band.
‘At this stage it is difficult to see the RBA rate cut as the first business item in 2025.
“The board likely wants to see at least two more rounds of favorable quarterly inflation numbers before cutting the cash rate.
‘Whether the RBA starts cutting cash rates in February or May may seem minor in the grand scheme of things, but on a decent-sized mortgage it could add up.’
High mortgage rates and rising property prices have put most homes out of reach for the average Australian
The latest employment figures, released on Thursday, showed Australia’s unemployment rate held steady at 4.1 percent for the third month in a row.
The figures show that the country added about 15,900 jobs to the economy in October, which is less than what economists had forecast.
The next inflation figures will be released on November 27, followed by retail figures on December 2 and GDP on December 4 – all important data that the RBA board will consider.