NAB tips rate cut for June

Poor job figures, weak economy ‘will force action’

NAB has brought forward its forecast for a cash rate cut and now expects the Reserve Bank to act in both June and August, with a third 25-basis-point movement to below 1 per cent possible in early 2020.

Economists at the nation’s fourth-biggest lender said yesterday a disappointing and unexpected uptick in the jobless rate unveiled this week provided further evidence the economy had softened more than the RBA expected.

Coupled with weak inflation for the March quarter, as well as subdued business and consumer sentiment, NAB said April’s jobs figures would force the central bank to take action at its June 4 board meeting, and again in August.

“This is likely to be signalled in the May board minutes and Governor Lowe’s speech on Tuesday,” NAB said in a note.

Previously, NAB expected the RBA to cut the cash rate by a quarter of a percentage point in July and again in November, taking it to 1 per cent.

The RBA has kept the cash rate has at a record-low 1.5 per cent for nearly three years but it has faced mounting pressure to act in the hope of kickstarting stagnating economic growth.

Market expectations of an interest-rate cut at the June 4 meeting have more than doubled in the space of a week, with a 64 per cent chance priced in yesterday.

At the RBA’s May 7 meeting, governor Philip Lowe appeared to hint that a future cut was possible if unemployment fell so gradually as to keep a lid on wage growth.

The jobless rate unexpectedly rose 0.1 points to 5.2 per cent on Thursday. NAB said its forecast of a second cut in August would allow the RBA board to gauge the initial reaction to the first cut and update its outlook based on the latest GPD, inflation and employment figures.

The lender noted further policy adjustment might be required and additional policy stimulus might be needed by early 2020.

“This could be in the form of a further rate cut, taking the cash rate below 1 per cent, or consideration of an alternative policy measure to support the economy,” NAB analysts said.