NAB Group Economics has changed tack from its long held view that no official rate cuts will occur in Australia this economic cycle. The release of the shock March quarter CPI figures has swayed the Bank and it now expects a 25bps rate cut at the RBA board meeting on 3 May.
The latest release of CPI data produced quarterly and annual core inflation figures which are the lowest since the RBA switched to inflation targeting in the early-1990s. NAB says that “it now seems likely that the Bank’s Board will vote in May to take the opportunity to provide some slight further assistance to the Australian economy and so potentially help lower the unemployment rate more quickly than previously forecast.”
Despite their view, NAB is not super-confident about the rate cut, however, and qualified their view by saying it is 55%/45% chance. “At this stage we think that a further rate adjustment may be a close run thing” as they are “generally optimistic about the near-term performance of the Australian economy and labour market.”