Key points

• We revert to our earlier expectation for a first cut in May 2025. From there we continue to see a steady profile of one cut per quarter back to 3.10% by mid 2026.
• The labour market has been stronger than expected and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish.
• There are only two more employment prints and one quarterly CPI before the February 18 meeting. Given the data flow to date, it now looks unlikely the RBA will have enough confidence in the trajectory of inflation by then. There is a real risk that policy rates stay on hold even deeper into 2025.
• We continue to assess that the economy has moved substantially towards balance and that some modest further easing in the labour market and capacity pressures will be sufficient to bring inflation back to target.
• While we expect rates will move lower over time, because the RBA’s policy stance is only modestly restrictive there is little urgency to adjust policy settings while both inflation and the unemployment rate are evolving gradually.
• RBA policy had diverged from peer central banks that moved policy deeper into restrictive settings. As other central banks have moved to cut rates, that divergence is narrowing. For Australia, the cutting phase will be later and ultimately shallower.

For further details, please see the NAB Monetary Policy Update (14 November 2024)