NAB forecasts 50bp rate cut in May

NAB chief economist Sally Auld said the Reserve Bank of Australia (RBA) may deliver a 50bps interest rate cut when it meets again in May.

Auld said headwinds from the global environment have intensified, but conceded large amounts of uncertainty remain.

"We now see the RBA easing more quickly through mid-2025, taking the cash rate to 2.6% by February," Auld said.

"We expect the RBA to cut by 50bps in May, followed by 25bps in July, August, November and February."

Auld said a lot has changed since the RBA board met earlier this month with risks to both global and domestic growth shifting to the downside.

"Against this backdrop, a restrictive policy stance in Australia is no longer appropriate, in our view. At present, the real cash rate in Australia - based on our 1Q CPI forecast for trimmed mean inflation - is well over 1%," Auld said.

"In our view that shifts the cash rate back to a neutral stance more quickly than we had previously expected and leaves the RBA with a more appropriate policy stance.

"With longer periods between RBA board meetings now a feature of the RBA calendar, some flexibility on the policy front has been lost, especially when developments are moving fast."

Auld is not the only expert forecasting a larger rate cut at the May meetings.

IG analyst Tony Sycamore said markets are now pricing in around a 30bps rate cut for May, and a cumulative 125bps of cuts priced from now until the end of the year to end on 2.85%.

Speaking on the continued rising tensions between the US and China because of US President Donald Trump's tariffs - which have now hit 125% - Sycamore said the global economy is facing a major challenge.

"At the risk of sounding dramatic, we are on the verge of seeing the two largest economic and military superpowers collide at high speed, with Australia caught squarely in the middle," Sycamore said.

"If current lines hold, the fallout has the potential to dwarf the economic impact on the Australian economy felt during the GFC and COVID."

The Reserve Bank of New Zealand (RBNZ) reduced its cash rate this week, citing uncertainty surrounding the tariffs.

"Against this backdrop, the recently announced increases in tariffs in the US, retaliation from several trading partners, and heighted geoeconomic uncertainty will have a significant negative impact on global growth. This will have adverse effects for domestic economic activity," the RBNZ board said.

"The global policy response will be an important consideration in gauging the implications of increased tariffs for medium-term inflation in New Zealand."