Aus bank’s shock reason for RBA double rate cut call

One of Australia’s biggest banks has urged the Reserve Bank to deliver a double rate cut to avert a looming shock.

Sally Auld, chief economist of the National Australia Bank, believes the RBA board has a unique window of opportunity with inflation dropping to give the economy a jump-start via a much needed double rate cut of 50 basis points – to thwart economic headwinds.

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“While we certainly don’t see it as an emergency, the lag in policy action and its impact imply a need to act relatively quickly – particularly when the stance of policy is not right for the prevailing economic conditions,” she told News Corp Australia.

Ms Auld, who took over the top NAB economics role in March this year, said “after hiking rates rapidly as inflation broke out, the RBA has held rates at a high level for an extended period”.

“This effectively put the brakes on the demand side of the economy to ensure inflation returned to a more normal level. Which it has done over the last few months and at the same time the global outlook for growth has softened.”

NAB says RBA put the brakes on economic demand which now needs to be addressed.

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Inflation

“On inflation, we’re now more comfortable that the RBA’s underlying measure will return to the middle of their target band by mid-2025.”

Global outlook

“On the global outlook, even though trade tensions have thawed in recent weeks, the outlook for global growth is still weaker than before Trump’s Liberation Day tariff announcements.”

“We think this weakness, fuelling uncertainty in markets, will reduce inflation even further.”

Ms Auld said “all of this means the RBA no longer needs to keep the brakes on the economy”.

Indeed, she said, “as inflation continues to moderate, lower rates are needed to ensure the labour market and economic activity remains healthy”.

Homeowners with mortgages across the country are hoping for more rate relief this year.

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“Importantly, with inflation looking more benign the RBA has the scope to support the economy in the face of any global weakness, as is the current outlook.”

Ms Auld said “recent data shows that the economy has held up relatively well, including the labour market, and for now there appears to be a positive trend in global trade negotiations”.

But, she added “we still think they RBA will want to normalise the policy rate more quickly than before – whether that’s in one large change or multiple in quick succession”.

Either way, most experts agree borrowers are in for major interest rate relief going forward this year.

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