RBA likely to slash interest rates — NAB

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National Australia Bank (NAB) has forecasted that the cash rate will drop to 0.75%, with the first cut to be announced by the central bank on June 4 –about two weeks after the federal election.

“We have changed our view on the cash rate, bringing forward the timing of forecast rate cuts to start in June. Previously, we had forecast the RBA to cut the cash rate by 25bp in July and again in November, taking the cash rate to 1%," NAB said in a statement. “We now expect the RBA to cut at the 4 June Board meeting and again in August. We also see a risk that the RBA delivers additional policy stimulus by early 2020, either by cutting again or opting for an alternative policy measure.”

NAB predicted that the cash rate would slide to 1.25% on June 4, 1% on Aug. 6, and .075% in the early part of 2020, according to a report by realestate.com.au.

The forecast came after recent labour force data showed that the economy was weaker than the RBA had expected. 

Unemployment, which climbed from 4.9% in February to 5.2% in April – as well as the underlying inflation, which was almost back at the multi-decade low reached in 2016 – influenced the prediction.

“Given low inflation, continued weakness in the NAB business survey — where NAB’s internal indicators point to the weakness in spending becoming entrenched — and now higher unemployment, we think the Board will now act in June and that this is likely to be signalled in the May Board minutes and Governor Lowe’s speech on Tuesday," NAB said in a statement.

NAB said that RBA was “overly optimistic on growth with a weaker labour market likely to see inflation undershoot the 2-3% target band until mid-2021."

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