One of Australia’s biggest banks has warned borrowers that relief could be further away than initially hoped. NAB has joined ANZ in pushing back its prediction of an interest rate cut until next year.

NAB, the country’s third-biggest lender, is forecasting the Reserve Bank of Australia (RBA) won’t lower the cash rate until May next year, six months later than it initially predicted. ANZ, on the other hand, is expecting the first cut to come in February next year.

It follows hotter-than-expected inflation data. Inflation rose by 4 per cent over the year to May, higher than the modest 3.8 per cent expected by economists and up from the 3.6 per cent recorded in April.

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“We now expect the RBA to remain on hold for longer, with a first rate cut now unlikely until May 2025 (previously November 2024),” NAB economists said.

“From there we see a steady profile of one cut per quarter back to 3.10 per cent, now reaching that point in mid-2026.”

NAB economists noted that economic growth had “slowed significantly” over the past year, with Australia’s GDP expanding by a meagre 0.1 per cent in the March quarter and 1.1 per cent annually. Progress on inflation has also been slower than NAB, and the RBA, had expected.

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“The mix of slow growth and gradual progress on inflation reflects the RBA’s decision to embrace a ‘lower for longer’ approach – a lower rate peak compared to other advanced economies, resulting in a longer period at that peak,” economists said.

They noted it was possible the board could “change course and raise rates at its August meeting”, particularly if June quarter inflation data due in a month is strong. But they concluded they don’t think it will come to this.

“With nine months elapsed since the last hike an August move would represent a significant course correction late in the cycle,” they said.

“Unless inflation deviates more considerably from the forecast path, we expect the Board to stick to their existing approach.”

AMP pushes back rate cut

Following the inflation data, AMP also pushed back its prediction of a rate cut until February next year and noted there was a risk another rate hike could be coming.

“As a result of the May inflation data the risk of another hike in August is now around 45 per cent, with June quarter inflation data due in a month key,” AMP chief economist Shane Oliver said.