Key points

• We now expect the RBA to cut in February 2025 (previously May 2025). From there we continue to see a steady profile of one cut per quarter back to 3.10% in early-2026.
• Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year.
• The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected. It remains our view that RBA cuts will be later and shallower than many peer central banks.
• The small adjustment to our cut profile does not come with material shifts to our forecasts. We expect H1 2024 will have marked the trough in growth, but we expect a more modest pickup than the RBA’s own forecasts. We expect the unemployment rate to rise a little further before stabilising around 4 1/2.
• Elevated inflation is being sustained by housing and stubborn pressures across domestic labour and nonlabour costs. We expect cost drivers to fade as capacity constraints ease further, and soft demand growth to inhibit passthrough to end consumer prices. We expect underlying CPI of 2.6% over 2025.
• The risks skew to a later first cut, but also to a faster cadence of cuts than our central profile.
• The worst of the real income squeeze is behind us as inflation has moderated and tax cuts flow through. If that supports a more material pickup in activity that slows or stalls progress on disinflation, the RBA will hold for longer. Conversely, confirmation of further progress on inflation would give the RBA space to respond more aggressively if the labour market showed signs of deteriorating.

For further details, please see the NAB Monetary Policy Update (30 September 2024)