The economics team of the country’s biggest bank for businesses — NAB — is splitting with the economists telling us to expect one or even two more rate rises, by arguing the next move by the Reserve Bank is likely to be, wait for it, down!
Thank God some people with economics training have got out of their offices and computerised world and had a look at the real world!
The person in question is NAB’s chief economist, Dr Sally Auld, who has put out a press release headed up by: “Next RBA rate move is down, timing uncertain.”
If Sal is right and I think she is on the money about the economy not needing more rate rises, then we next have to hope that the RBA Governor, Michele Bullock and her board, can see that our economy is in the kind of negative wobble mode that says, “enough is enough” when it comes to rate rises.
I really hope in a few months’ time, I can say Michele is one of the smartest RBA bosses in a long time but I will only deliver her this bouquet if she holds rates next Tuesday and gives us our first cut on either at the August 10 or September 29 meetings.
And because central bankers can’t be as provocative and in-your-face as former academic economists-turned-media commentators, I suspect we won’t see a cut until the September meeting.
But get this, the NAB team see the cash rate of interest dropping from the current 4.35% to 3.6% by the end of 2027. That’s a 0.75% fall in store if the NAB number-crunchers are right.
By September, it should give the RBA time to see the following, that should make or break a possible rate cut:
- Economic growth, which was a weak 0.3% in March, is next on show for the June quarter on September 2. If it remains weak, a cut later in that month would make sense.
- The trend for unemployment, which spiked, surprising economists, rising from 4.3% to 4.5% from March to April.
- The state of consumer confidence, which this week we saw in May was at its second-lowest level since November 2023, amid ongoing cost-of-living pressures.
- The NAB business survey improved slightly but as Trading Economics noted: “Confidence, however, remained firmly negative, underscoring concerns over the economic outlook.”
- The Budget’s continued negative effect on the housing sector, on top of the three rate rises this year and the consumer negativity from the escalated petrol prices, has led the NAB economists to conclude that “tighter financial conditions will be reflected in both a slowing in house price growth and housing credit growth.”
- Home auction clearance rates, which are at levels not seen since the Covid pandemic levels.
- The course of the Iran war will be crucial with petrol prices bound to fall with peace and that would have to help future inflation rates fall.
Sally Auld says recent data suggests the economy has lost momentum and the outlook for rates has shifted, noting that the broader economic backdrop has changed since earlier in the year. NAB’s window on the state of its business customers should not be easily ignored, nor should this from its chief economist: “The next move in the cash rate is likely to be down, but the timing is uncertain. In February, growth was above trend, the economy was operating above capacity and there was uncertainty over the restrictiveness of rates. None of these conditions exist today.”
Dr Auld said recent data pointed to softer momentum across the economy while acknowledging that at the same time, uncertainty remains a key feature of the outlook.
Intelligently, Auld concluded: “In summary, we have greater conviction that the next move in rates is down, but less conviction on the timing.”
It’s good to see an economist grasping what is going on in the real world, before the ABS comes up with statistics that tell us what has been happening in the economy, albeit that their numbers are out of date and behind the curve — a bit like the RBA!
Good on you Pete and I knew you would would luv these comments from nab’s economist.
But alas it is all to do with nab’s (and I am sure the remaining banks) views on the economic outlook for Aus due to a totally incompetent govt
Thanks again for today’s paper
I’ll go back and continue to relax around my Bali swimming pool
😊