Australia's borrowers could save $500+ monthly if NAB forecast holds
The National Australia Bank (NAB) forecasts an aggressive interest rate cutting cycle by the Reserve Bank of Australia (RBA), citing deteriorating global conditions, trade policy uncertainty, and easing inflation pressures as key catalysts for monetary stimulus.
In its latest Economic and Financial Market Update, NAB predicts a 50-basis-point rate cut in May—double the standard move—followed by four additional 25-basis-point reductions in July, August, November, and February. If realised, the RBA’s cash rate would drop to 2.60% over the coming months.
“Disinflation is advancing, global growth expectations have weakened, and the trade shock from recent tariff changes has taken its toll on sentiment,” said Sally Auld, NAB chief economist. “In light of these developments, we believe the RBA needs to move policy back to a more neutral footing—quickly.”
NAB’s forecast diverges sharply from those of its peers. Commonwealth Bank, Westpac, and ANZ have each pencilled in a more gradual path, with 25-basis-point cuts expected over the next few quarters. But NAB argues that the RBA is behind the curve and must act decisively to support confidence and demand.
The move, if implemented, could ease pressure on millions of borrowers. According to NAB estimates, a 1.50% cut from current levels would reduce repayments on a $600,000 mortgage by approximately $526 per month.
Political landscape and fiscal implications
The recent federal election saw the Australian Labor Party (ALP) returned with a larger-than-expected majority, a development NAB believes will embolden the government to expand its economic footprint over the next three years. Increased public spending and state intervention are expected to play a bigger role in shaping Australia’s economic trajectory.
“The result gives the government a strong mandate,” the report said, suggesting a policy environment reminiscent of the Global Financial Crisis and COVID-19 response periods—marked by active fiscal and monetary coordination.
Currency and market strategy
NAB also revised its year-end target for the Australian dollar to USD 0.70, reflecting expectations of a multi-year bear market for the greenback. The bank noted that global investors are likely to shift toward AUD-denominated assets amid a weakening U.S. dollar outlook and increased hedging activity from Australian superannuation funds.
In financial markets, NAB’s asset management arm remains defensively positioned, with a cautious stance on equities and a preference for fixed income. Australian government bonds are expected to outperform as the yield differential between Australian and U.S. 10-year bonds narrows.
Despite recent market optimism tied to speculation around tariff rollbacks, NAB’s outlook remains guarded. “Even with temporary relief, the long-term damage to business and household sentiment has been done,” Auld said.
The RBA’s May policy meeting is now shaping up to be a pivotal moment, as pressure mounts on the central bank to act boldly in the face of a fragile global economic backdrop.
Should the RBA act boldly or wait for clearer inflation data? Let us know in the comments.
