Mortgage holders to get rate relief: NAB

NAB no longer expects the RBA to hike by 25 basis points in August and now sees the cash rate peaking at the current rate of 4.35 per cent for the cycle.

The bank predicted that the next move in the cash rate is likely to be down, though the timing is uncertain.

In recognition of shifting risks to the RBA outlook, NAB brought forward the expected easing from H2 2027 to Q2 2027, ultimately seeing the cash rate end in 2027 at 3.6 per cent.

In a statement, the bank said it was minded to view the proposed changes to taxation arrangements for housing and other asset classes as an exogenous tightening of financial conditions.

“Tighter financial conditions will be reflected in both a slowing in house price growth and housing credit growth,” NAB said.

As a consequence, the bank revised downward its forecasts for both house price growth and credit growth.

According to the Q1 GDP data and the NAB business survey, the economy had slowed, indicating that growth has likely peaked for the cycle.

Yet, should activity weaken faster than expected, NAB said the RBA would cut rates earlier than currently forecast.

The NAB May business conditions remained unchanged at 3 index points, according to CreditorWatch economist Ivan Colhoun, but the reality is weaker than the headline suggests.

“Closer inspection of state and industry figures suggests the data is a little weaker than suggested at face value, with a huge rise in the volatile Tasmanian conditions reading preventing an overall decline in the month. Most industries and three large states reported weaker conditions,” Colhoun said.

Despite these signs of economic cooling, persistent inflationary pressures continue to complicate the outlook, Colhoun said.

“Measures of cost and price pressures moderated in the month from the very high readings of March and April but remain at rates above those which are likely to be consistent with the achievement of the RBA’s 2.5 per cent inflation target.”

“The RBA’s decision is not going to be made any easier following the recent minimum wage case and award rates decision of 4.75 per cent, which is nearly twice the RBA’s inflation target,” he said.

“If we are correct on the direction of the RBA cash rate, there is scope for decent moves in AUD and frontend rates as the market adjusts to a more dovish view.”