NAB Abandons Rate Hike Call, Forecasts Cuts by Q2 2027

National Australia Bank has reversed its interest rate forecast, abandoning its prediction of an August rate hike. The bank now expects the RBA cash rate to remain at 4.35% for the rest of 2026, with cuts starting in the second quarter of 2027. This shift reflects slowing economic growth and easing cost pressures across Australia.

NAB Joins the Rate Hold Consensus

NAB, Commonwealth Bank, and ANZ now forecast the cash rate will stay at 4.35% through 2026. NAB previously predicted one more hike in August but has abandoned that call. Westpac remains the only major bank still forecasting rate rises this year, pencilling in two more hikes. The shift reflects a major change in how Australia’s largest lenders view monetary policy.

Economic Momentum Has Slowed Sharply

Recent GDP data and NAB’s business survey show the economy has lost momentum. GDP grew just 0.3% in the March quarter, and per capita GDP declined 0.1%. NAB’s survey showed business conditions improved 10 index points to minus 14 in May, but conditions remain significantly softer than at the start of the year. Capacity utilisation slipped below 82% for the first time in more than a year, a key measure the RBA watches closely.

Cost Pressures Ease Across the Board

Purchase cost growth fell sharply from 4.5% in April to 2.6% in May. Final product price growth halved from 1.8% to 0.9% over the same period. Lower fuel prices and the federal government’s excise cut have helped ease inflation pressures. Analysts at NAB noted cost shocks have not been as broad-based as initially feared following the Strait of Hormuz blockade.

When Will Rates Actually Fall?

NAB forecasts the cash rate will reach 3.6% by the end of 2027, implying around 75 basis points of cuts. CBA’s central forecast is for the cash rate to remain on hold until early 2027, followed by rate cuts at the May and August 2027 meetings. Mortgage holders face a long wait for relief, with no cuts expected until mid-2027 at the earliest.

Final Thoughts

NAB’s forecast reversal signals the RBA’s tightening cycle is over. With economic growth slowing and cost pressures easing, rate cuts are now likely from Q2 2027, not sooner. Investors should prepare for rates to stay elevated through 2026.

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