NAB Archives - Konrad Bobilak

ANZ and the Commonwealth Bank are both forecasting a rate cut when the RBA next meets in February. The Reserve Bank says economic management remains a "balancing act".

ANZ has joined the Commonwealth Bank in predicting an interest rate cut in February, which could provide relief to mortgage holders following a sustained rate of 4.35 per cent.

The cash rate has stayed the same since November 2023, with Reserve Bank of Australia (RBA) governor Michele Bullock saying that taming inflation is a "balancing act".

"With inflation coming down and employment growing, we think we remain on the narrow path," she said after the central bank's December meeting.

So, what does the RBA consider when setting its cash rate target, and what do the 'big four' banks think lies ahead?

What are the banks predicting?

ANZ and CommBank are both forecasting a rate cut when the RBA next meets in February.

Westpac and NAB disagree and are predicting Australians will have to wait for the third RBA meeting in May before the cash rate target is changed.

The banks also differ when it comes to estimating how many cuts will occur throughout 2025.

ANZ is the most conservative and is anticipating two cuts this year, while CBA and Westpac both speculate four will occur.

NAB is projecting five rate cuts.

Independent financial comparison site Canstar has estimated that a reduction in monthly repayments from one cut could be up to $92 on a $600,000 loan with 25 years remaining on the term.

How much could Australians save?

On Friday, Canstar released data calculating drops in mortgage repayments for each of the bank's predictions.

If five rate cuts are realised, the drop in monthly repayments could be as high as $441 per month for a borrower with a $600,000 loan and 25 years remaining.

If just two rate cuts occur, the same borrower will save $182 each month.

Two big banks now predict a February rate cut.

NAB is expecting the greatest relief for borrowers with five cuts compared to ANZ’s forecast for only two cuts.

A rate cut is increasingly likely this February, but Canstar data insights director Sally Tindall said to "prepare for any possibility".

"The big question is just how many rate cuts the RBA will end up handing out. If you’ve got a mortgage, be prepared for every possibility," she said.

"A rate cut in February is increasingly likely, however, with over five weeks to go until the next Board meeting and the RBA firmly focused on incoming data, this could change."

There are several measures that influence RBA decision-making, including inflation and unemployment.

Looking to inflation and employment rates

ANZ's new prediction of a February rate cut follows the release of November's consumer price index (CPI) data on Wednesday.

The Australian Bureau of Statistics reported CPI at 2.3 per cent in the 12 months leading to November, within the RBA's target of 2 to 3 per cent.

ABS head of price statistics Michelle Marquardt said government electricity rebates had a large impact on CPI.

"In some states and territories, households received two rebate payments in October in lieu of not receiving a payment in July. From November, most households have received one payment," she said on Wednesday.

"As a result, electricity prices fell 21.5 per cent in the 12 months to November, compared to a fall of 35.6 per cent to October."

Meanwhile, underlying inflation was at 3.2 per cent in November, down from 3.5 per cent in October.

The RBA's target for this form of inflation is 2 to 3 per cent.

Tindall said analysts would also be looking at soon-to-be-released employment data.

"All eyes will be on next week’s ABS Labour Force data and the quarterly CPI results released at the end of the month," she said.

"If core inflation continues along the same trajectory as we saw in the more volatile monthly dataset, then we could well see a rate cut."

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NAB has come forward with its predictions for interest rate cuts, penning a total of three for 2025.

NAB Group CEO Andrew Irvine released a statement on behalf of the major bank, saying that Aussies should expect some relief after economic troubles plagued many throughout 2024.

“It’s my view that we’re at the hardest point of the economic cycle right now and things will get better from here,” Irvine said.

“We’re seeing tax cuts for Australians that most are actually saving, so deposit balances are increasing in the sector, which I think is promising. And we do expect interest rates to start to fall by the middle of this year. We’re then expecting two further cuts during the year.”

With potential interest rate cuts and a federal election expected to shake things up, 2025 is set to be a big year for Australia. NAB has recognised right now as the hardest point of economic pressure, with challenges set to ease.

“People are juggling, people are budgeting and they’re budgeting hard to make ends meet every single month,” said Irvine.

“The big thing for us is employment and the strong employment market conditions throughout Australia and the minimal amount of unemployment. Typically, in my experience, as long as people have jobs and there is income coming into the household, most bills, most mortgage payments are met, and the worst doesn’t happen.”

According to Irvine, a rate cut will be the sigh of relief Aussies are after and this decision will mark the beginning of the end of the major economic challenges of recent years.

“My prediction is that over the course of the year, it’s going to be slow and measured improvement. And when we get that first rate cut, I think it’s going to have a significant impact on the psyche of consumers, as well as business people that is likely far greater than the actual impact it will have on cashflow,” he said.

“I think that at the back end of this year you’ll start to see good growth. Businesses are confidence players and frankly consumers also, and I just think it will create a positive environment for spending and for employment as well.”

Further to the wider population doing it tough, so too have SMEs. NAB said that this year will bring a sense of optimism back to both consumers and business operators.

“SMEs are the heartbeat of our economy. Thankfully, in many sectors, SMEs continue to be doing well. Regionally, businesses in Queensland, WA, NT are doing well. Businesses that support the resources sector, energy, agriculture, defence – these are large tracts of our economy that are doing well,” Irvine said.

“At the same time, businesses that focus on value and have really good value lines are also trading really well. If you’re a business that serves luxury goods or you’re a restaurant that people want to go to and be seen at, those types of businesses are trading really, really well.

“It’s businesses that have skews that are in the middle, where they’re seeing a downgrade to value and that’s then compressing their margins. And I think that’s where we’re seeing the most pressure in our client base with SMEs.”

Despite this optimism, there are some factors that could stand to disadvantage our economy. The election of Donald Trump in the US is one major hurdle, with looming worries of a “trade war” placing added pressure.

“We will have to see how Mr Trump’s comments about increasing tariffs play out over time, but it’s clear no one wins in a trade war,” Irvine said.

“What gives me optimism is that over the past four or five years, many Australian businesses have diversified their markets. We have seen terrific diversification not just in commodities and agriculture but across all sectors. That puts Australia in a stronger relative position.

“This is testament to the hard work and achievements of many small and medium businesses. We’ve got good products and services to sell, and I continue to be optimistic.”