NAB has changed its RBA rate view, saying the Reserve Bank is now more likely to hold the cash rate steady and then begin cutting in the first half of next year. The bank’s chief economist, Sally Auld, said the next move in the cash rate is likely to be down, not up, even as the timing remains uncertain.
The forecast shift lands at a moment when borrowers are watching every signal from the central bank. NAB made the call on Tuesday after signs of slowing growth, rising unemployment and softer sentiment, all of which point to an economy losing momentum while inflation is still well above the Reserve Bank’s 2-3 per cent target band.
Auld’s new view matters because it marks a clear break from the idea that rates still have further to climb. The Reserve Bank lifted rates at its past three meetings, and financial markets had been pricing in more chance of another quarter-point increase by Christmas than a pause, let alone cuts. NAB now sees the cash rate at 3.6 per cent by year-end, implying the bank thinks the tightening cycle is close to done.
That call is being driven by signs that the economy is weakening faster than many expected. Last week’s national accounts showed growth slowing through the first three months, unemployment has pushed up to 4.5 per cent, and this month the Westpac-Melbourne Institute measure of sentiment slipped 2.9 per cent to near its lowest level in 50 years. Pessimists outnumbered optimists by almost 20 per cent, underscoring how cautious households have become.
Households are also feeling pressure from prices and policy changes. NAB forecast Sydney house prices to fall 6 per cent this year and Melbourne prices to fall 7 per cent, and it said the government’s changes to negative gearing and capital gains tax were likely to weigh on the property market. Westpac-Melbourne Institute economist Matthew Hassan said cost-of-living issues remained front and centre, while a sharp drop in house price expectations suggested some consumers were becoming more unsettled about the impact of the tax changes.
The gap in NAB’s outlook is timing. Auld said the bank would bring forward its forecast if activity data weakened more quickly than expected, which leaves open the chance that the Reserve Bank could ease earlier than currently pencilled in. For mortgage holders, that means the next move is still not locked in, but the direction NAB now sees is lower — and the debate is shifting from whether the cycle is over to how long households will have to wait for relief.
