Australia’s economic outlook has prompted a shift in forecasts regarding interest rate policy. National Australia Bank (NAB) now anticipates that the Reserve Bank of Australia (RBA) will reduce interest rates by 50 basis points during their upcoming meeting, bringing the cash rate down to 2.6 per cent.
This change reflects concerns about slowing economic growth within Australia and a belief that the current restrictive monetary policy is no longer suitable given prevailing global conditions. According to NAB’s chief economist, Sally Auld, “Our call for a 50bps easing in May reflects the fact that with the real cash rate of 1.3 per cent and policy currently restrictive, the RBA needs to play catch up.” Auld further noted the unpredictable nature of current conditions.
NAB is also projecting an additional rate cut in July and anticipates a total of five reductions by early next year.
While NAB’s prediction is more aggressive than those of its peers, potential benefits for borrowers are considerable. Commonwealth Bank, Westpac, and ANZ all foresee a smaller 0.25 per cent reduction in May.
Analysis from Canstar demonstrates the impact of a half-percentage-point rate decrease:
- A $600,000 mortgage could see monthly repayments fall by approximately $181, averaging around $3707.
- For mortgages of $750,000, the reduction would be roughly $226.
- Borrowers with $1 million mortgages could expect a decrease of about $302 per month.
The RBA’s strategy is expected to involve a pause after reaching a more neutral policy setting before gradually easing rates further.
“Once the cash rate reaches a level more consistent with a neutral policy setting, we then expect the RBA to pause for a few months before taking the cash rate into modestly accommodative territory,” Auld stated.
