NAB now expects an unchanged cash rate until late 2024

NAB Monetary Policy Update: RBA to Hold Rates Until Late 2024, Cuts Expected in 2025

Key Points:

• NAB expects the RBA to keep the cash rate at 4.35% in February, marking the peak before potential cuts in late 2024.
• Rates are predicted to remain unchanged until November 2024, followed by gradual cuts totaling 125 basis points by the end of 2025, bringing the cash rate to 3.1%.
• This revision comes after inflation data fell below RBA forecasts and growth remained below trend, reducing the urgency for further rate hikes.

Softer Inflation Eases Pressure on RBA:

• Recent CPI data indicates a faster-than-expected decline in inflation, prompting NAB to adjust its forecast.
• While a slight uptick in Q1 2024 is possible due to expiring rent subsidies, the overall inflation trend is expected to remain downward.
• Goods disinflation is exceeding expectations, providing an offset to higher services inflation.

Outlook for Growth and Labor Market:

• NAB forecasts below-trend GDP growth of 1.4% in 2024 and 2.25% in 2025.
• The unemployment rate is predicted to rise gradually to 4.5% by the end of 2025.
• As inflation eases and growth slows, the RBA will likely shift its focus towards the labor market later in 2024.

Risks and Uncertainties:

• Upside risks include persistent services inflation and a potential rebound in global shipping costs.
• Downside risks include a larger-than-expected slowdown in household consumption due to cost-of-living pressures.

Overall, NAB's revised forecast suggests a period of stability in interest rates before potential cuts in late 2024, with the RBA focusing on balancing inflation and labor market concerns.
 

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