Login
ISCOVER
Domestic economic factors, coupled with the impact of trade tariffs, mean the RBA can afford to move more quickly in easing interest rates, according to a NAB economist.
National Australia Bank (NAB) economists have outlined that positive economic indicators in Australia – coupled with a sharp rise in global uncertainty caused by trade tariffs – may lead the Reserve Bank of Australia (RBA) to speed up the pace of interest rate cuts.
In NAB’s Property Insights Webinar on Wednesday (7 May), the major bank’s economists discussed the timing of another cash rate cut, why house building remains sluggish, and if property affordability will improve.
Expect RBA to act ‘pre-emptively’
While NAB has previously said the RBA may cut the cash rate by 50 bps in May, followed by 25 bps in July, August, and November this year, NAB’s head of Australian economics, Gareth Spence, said relatively low unemployment levels and encouraging inflation data supported the case for the RBA to lower the cash rate.
The annual trimmed mean of inflation, which is one of the figures the RBA is most interested in when setting the cash rate, eased over the March 2025 quarter to fall within the central bank’s 2–3 per cent target range for the first time in more than three years.
“From here, we think inflation will remain relatively benign and ultimately what that means is the RBA can continue to ease rates,” Spence said.
“We saw them cut 25 basis points in February. We had expected them to continue to gradually ease rates to something a little bit more neutral. So as inflation continues to moderate, the RBA could gradually lower rates, take the brakes off a little bit and ensure that the labour market remains well supported.”
Looking ahead, Spence said that a shift in the global backdrop and the impact of trade tariffs “probably changes the risks a fair bit” and has led to greater downside risks to inflation.
With that in mind, he said: “We think the RBA can actually act a little bit more rapidly now so they can return the cash rate to neutral and be quicker. We think that’s around 3 per cent.”
Spence said that there was some scope for the RBA to lower rates even further next year – to 2.6 per cent by early 2026 – if the trend of slowing global growth continues to play out more materially.
He said: “We think it is a large move, quite quickly, but I think we need to remember that we are in restrictive territory, and with the risk shifting, the RBA can afford to move a bit more quickly to pre-emptively support the economy.”
Stubbornly tight housing supply
Housing supply was a key issue for many voters in the run-up to the May election, with major parties making pledges to boost home building (and the Albanese Labor government winning the majority of the votes).
However, in spite of initiatives to support home building, Spence said that supply still needed to catch up to demand amid population growth and rising house prices.
“The bigger picture here is we still need to be building around 200,000 dwellings a year. The government still has the target of 1.2 million new dwellings by 2029. We’re falling a little bit short of that at the moment,” Spence said.
Labor has said new national initiatives would help deliver on its election promise to build 100,000 homes exclusively for first home buyers while supporting its wider goal to build 1.2 million new homes in five years.
Spence said that high construction costs were holding back supply, particularly productivity and completions.
‘Sharp deterioration’ in housing affordability
Commenting on trends in house prices, NAB’s head of valuations, Mark Browning, said that Brisbane, Adelaide, and Perth had been the largest drivers of property price growth over the last year.
Sydney experienced a brief dip in property prices in the latter part of last year and into January 2025 but has now started to rebound, with three consecutive months of price growth in Sydney and across the national picture, he said.
Spence said that housing affordability was probably the biggest current economic issue, with “quite a sharp deterioration [in prices], around 30 year lows across the country, with those very sharp rises we’ve seen in the smaller capitals. Affordability has fallen.”
Remarking on the best way to counter surging house prices, he said: “I think the large answer here is: it’s the supply side that still needs to respond and is the real challenge”.
[Related: May rate cut ‘near certainty’ as inflation hits RBA target]
JOIN THE DISCUSSION