The National Australia Bank (NAB) has made a significant prediction regarding interest rates, forecasting multiple cuts that could provide much-needed relief for homeowners facing rising mortgage repayments. Chief economist Sally Auld announced that the Reserve Bank of Australia (RBA) is expected to reduce rates by a total of 100 basis points by August 2025, a move that has raised hopes for a more favorable financial environment.
NAB’s forecast outlines a detailed timetable for these anticipated cuts: a 50 basis point (bps) reduction in May, followed by 25bps cuts in July, August, November, and February 2026. If these predictions hold true, the official cash rate would decrease from the current 4.10 percent to 3.10 percent by mid-August 2025. By the end of the year, NAB expects the rate to fall further to 2.85 percent, ultimately reaching 2.60 percent in February 2026.
Auld emphasized the necessity for the RBA to reassess its economic policy, noting that inflation risks are now skewed to the downside. This shift is attributed to factors such as trade diversions and weaker global growth, prompting NAB to advocate for a more flexible and responsive monetary policy. "If the RBA knew on 1 April what it knows today, it is likely that the Board would have decided to lower the cash rate by 25bp at the last meeting and followed up that easing with a 25bp rate cut in May," Auld stated in her May update.
Recent data from the Australian Bureau of Statistics supports NAB's position, revealing that underlying inflation has finally entered the RBA’s target range for the first time since late 2021. This development strengthens the argument for rate cuts, as it indicates a potential easing of inflationary pressures.
In light of these changes, NAB has also revised its economic projections, lowering its 2025 GDP forecast to 2.0 percent and raising the unemployment forecast to 4.4 percent. Despite these adjustments, the bank remains optimistic about the Australian government’s ability to navigate the complexities of both global and domestic economic landscapes.
Adding to the chorus of predictions, Bendigo Bank has also forecasted four additional rate cuts, starting with one in May 2025. However, RBA Governor Michele Bullock has urged caution, emphasizing the need for patience in the face of economic volatility stemming from ongoing trade disruptions, particularly those related to tariffs imposed by the United States under former President Donald Trump.
These tariffs have significantly impacted global economic stability, leading NAB to downgrade its global growth outlook. Despite the optimistic predictions regarding interest rate cuts, the bank recognizes that these broader international uncertainties could limit Australia’s economic performance.
Australia's relatively limited exposure to U.S. exports—less than five percent of total exports—may help mitigate the adverse effects of these tariffs, providing a buffer for the Australian economy. NAB's analysis indicates that while challenges remain, the country is somewhat insulated from the worst impacts of global trade disruptions.
As the landscape shifts, the focus now turns to the RBA's upcoming decisions. The May meeting is particularly critical, as it could set the tone for the remainder of the year. If the RBA follows NAB's predictions, many mortgage holders could see their repayments decrease, alleviating financial pressure for households across the nation.
However, Auld cautions that achieving the forecasted rate cuts will require the RBA to adjust its approach to economic policy. She believes that the risks to inflation are now skewed to the downside, and a less cautious response to economic developments is necessary. "We think the RBA will see a need to take policy to a more neutral stance relatively quickly," she remarked.
The financial markets, however, are currently less dovish than NAB, with many analysts predicting an end-of-year cash rate of 3.10 percent. This implies four 25bps rate cuts rather than the larger reductions NAB anticipates. Auld’s forecasts suggest that the easing cycle could resemble those seen during the Global Financial Crisis and the COVID-19 pandemic, where rapid and decisive action was necessary.
As the economic landscape continues to evolve, the relationship between the RBA and the broader financial markets will be under close scrutiny. Homeowners and investors alike are keenly watching the RBA's moves, hoping for a shift that could provide much-needed relief in a challenging economic environment.
Ultimately, the path forward will depend on the RBA's ability to adapt its policies in response to shifting inflationary trends and global economic conditions. With the potential for interest rate cuts on the horizon, Australian homeowners may find themselves in a more favorable financial situation as the year progresses.
