Reserve Bank interest rates: NAB moves forward cut call to February, in line with other bank majors

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Reserve Bank interest rates: NAB moves forward cut call to February, in line with other bank majors

NAB has brought forward its prediction for when the Reserve Bank will cut interest rates by three months after inflation cooled more than expected.

It means all four big Aussie banks now expect a cut at the meeting on February 17 and 18. Westpac shifted its guidance on Wednesday.

Core inflation slowed to 3.2 per cent for the year to December, down from 3.6 per cent in the previous quarter.

The pace remains above the Reserve Bank’s target, but analysts took the numbers as a clear sign inflation was getting under control.

“The (December data) confirms that inflation has moderated more quickly than the RBA expected and sets up a likely downward revision to the inflation profile in the February Statement of Monetary Policy,” NAB chief economist Alan Olster said.

“This now makes February the most likely starting point for a gradual easing in interest rates.

“While the labour market remains strong, we do not see current conditions as inflationary.

“However, the RBA’s growing confidence will need to come in part from a reassessment of tightness in the labour market.“

When the central bank does cut, borrowers should not expect rapid movement, however.

Mr Olster said there was value in the Reserve waiting longer before making a decision. Yet he said the RBA had clearly changed its communications at the most recent meeting, in December, opening the door for a move.

Markets were overnight pricing in a 95 per cent chance of a rate cut in February.

Not all economists believe a move next month is locked in, however.

On Wednesday, EY’s Cherelle Murphy said relief was “closer, although a February rate cut is not a done deal.”.

Ms Murphy pointed to the strong labour market and low productivity growth as adding to cost pressure.

Jobs growth smashed expectations through 2024 and unemployment remains close to multi-decade lows.

Economists warn that trying to push the jobless rate too low through stimulus or rate cuts will reigi the inflation fight.

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