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The National Bank of Australia (NBA) has updated its official cash rate outlook, following Wednesday's Consumer Price Index (CPI) data release.
The major bank is now expecting a rate cut of 25 basis points during the Reserve Bank of Australia's Feb. 17-18 meeting. NAB had previously expected the cuts to come in May.
NAB Group chief economist Alan Oster wrote in a note that the decision was made largely on Australia's easing inflationary pressures.
"The Q4 CPI confirms that inflation has moderated more quickly than the RBA expected and sets up a likely downward revision to the inflation profile in the February [state of monetary policy]," Oster wrote. "This now makes February the most likely starting point for a gradual easing in interest rates.
"While the labour market remains strong, we do not see current conditions as inflationary," Oster continued. "However, the RBA's growing confidence will need to come in part from a reassessment of tightness in the labour market."
On Wednesday, the Australian Bureau of Statistics released fourth quarter CPI results, showing inflationary pressures for both the CPI and trimmed mean inflation rates were subsiding.
The trimmed mean, which the RBA uses to measure underlying inflation by stripping out goods with volatile price changes, fell to 3.2%, down from 3.6% in the September third quarter.
"We have just enough evidence to conclude that disinflation has proceeded faster than the RBA expected," said Luci Ellis, Westpac chief economist.
The latest CPI data caused economists and market players alike a rush of optimism for potential near-term rate cuts, as the RBA had previously said it is targeting an inflation rate between 2% and 3% before it will cut rates.
And any rate cuts would be a welcome relief to mortgage holders and investors, as Australia's higher-for-longer cash rate has been on hold at 4.35% since November 2023.
"If the RBA reduces the cash rate, that will increase activity in the purchase market," Chris Paterson, general manager of distribution at non-bank lender Resimac, told Australian Broker. He added that the current market environment, with higher rates, has resulted in a market full of refinancings.
"Certainly coming out of a Christmas holiday period, rates have been traditionally high, so customers are looking to reduce their repayments where possible, and if they can utilize that competition to their benefit, they are looking for lower rate options," Paterson said.
Alissa Childs, cofounder and director at New South Wales-based mortgage brokerage Two Birds One Loan, added that a rate cut will surely "shake things up."
"If [rates] come down, people will get a little bit more borrowing capacity up their sleeves," she said. "I think a lot of people have been quite handcuffed in terms of purchase prices and things with the rates being what they are.
"When the rates come down, there's more demand, [and] probably it will push prices up again," the broker continued. "So a rate drop will make us very busy."