Homeowners hoping to start the new year with a little extra cash have been dealt a devastating blow with one of the countrys big four banks warning a rate cut could still be six months away.
National Australia Bank - and its chief rivals - had all been tipping the Reserve Bank of Australia would cut the official cash rate at its first meeting of 2025 in February.
But the NAB revised its forecast late this week, saying it now believed the central bank would refrain from trimming rates until at least May.
The labour market has been stronger than expected and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish, NAB stated in its updated monetary policy published on Thursday.
On 30 September, we pulled our rate call forward to a first cut in February.
We did that expecting an improving balance of risks around the inflation outlook would bring a rate cut into view sooner.
Australian homeowners could have to tough it out for six more months before seeing a rate cut
National Australia Bank had initially tipped a drop in February but has revised its forecast
While Q3 CPI data was as expected, we have been surprised by resilience in labour market indicators.
It remains our view that the unemployment rate will rise a little further before stabilising around 4.5 per cent in mid 2025, broadly in line with the RBAs November forecast track.
The NABs revised forecast will not be well-received by the Albanese government, which had been hoping inflation would be reined in and rates would fall before the election due by May next year.
The RBA has one more meeting this year, then three in the first half of next year - February 17-18, March 31/April 1 and May 19-20.
The central bank has said it needs the trimmed inflation rate to be consistently in its target range of 2-3 per cent before a rate cut would happen.
While headline inflation for the September quarter was 2.8 per cent over the year - within the central banks target range of 2-3 per cent - this was largely thanks to government subsidies on energy and fuel.
The underlying inflation rate that the RBA watches was 3.5 per cent.
Those struggling to meet their mortgage repayments havent copped a break in four years
Despite NABs grim prediction, Australias other Big Four banks - Commonwealth, Westpac and ANZ - are still forecasting a rate cut in February.
Regardless of when the RBA decides to make cuts, the announcement will mark the first monetary policy easing since November 2020.
The RBA is yet to budge on its policy, after it increased rates 13 times between 2022 and 2023 and has kept the rate at 4.35 per cent for a full year now.
Canstar data insight director Sally Tindall said while it might seem like a small revision by the NAB, if the bank was right, it could end up costing homeowners thousands.
Our research shows the average owner-occupier with $600,000 debt and 25 years remaining could end up paying almost $2000 extra in interest over the next two years as a result of a May start to the rate cuts, as opposed to February, she said.
This change is a good reminder of just how many balls are still in the air at this stage, particularly for a central bank that is data-dependent.
If youve got a mortgage, dont bank on a rate cut until it hits your bank account. If you want a rate cut sooner, go out and get one yourself by haggling or refinancing.
Ms Tindall warned homeowners not get too stressed - or excited - about any forecast until the RBA made an official announcement.
Data insight director Sally Tindall says it is hard to put too much faith in long-term forecasts
The new year might be fast approaching but the timing of the first cash rate cut is still incredibly grey, Ms Tindall said.
Unemployment has held steady for three months in a row, giving the RBA the green light to keep the cash rate at 4.35 per cent, for now, particularly seeing as underlying inflation is still a fair way above the banks 2 to 3 per cent target band.
At this stage, its difficult to see the RBA cutting rates as its first point of business in 2025.
The board is likely to want to see at least two more rounds of favourable quarterly inflation data before cutting the cash rate.
Whether the RBA starts cutting the cash rate in February or May might seem minor in the grand scheme of things, on a decent-sized mortgage, it can add up.
High mortgage rates and soaring property prices have made most homes unattainable to average Australians
The latest employment figures, released on Thursday, showed Australias unemployment rate remained steady at 4.1 per cent for the third month in a row.
The figures found the country had added adding about 15,900 jobs to the economy in October, softer than what economists had forecast.
The next inflation figures will be released on November 27, followed by retail trade figures on December 2 and GDP on December 4 - all key data the RBA board will consider.