NAB calls peak on RBA rates, scraps August hike call

NAB economists have abandoned their prior forecast of another 25-basis-point increase in August and now expect the cash rate to have already peaked at 4.35%. 

The big four bank is also confident interest rates will be down earlier but stresses it has “less conviction” on the timing. 

“We have brought forward our expected easing from H2 2027 to Q2 2027, which now sees the cash rate end 2027 at 3.6%,” NAB chief economist Sally Auld said. 

Among the big four banks, Westpac continues to forecast two further rate hikes this year, in August and September. 

CBA and ANZ are leaning toward no further increases in 2026, while NAB is the first among the majors to signal the next move in rates will be down. 

Growth concerns, weak sentiment drive the shift

NAB cites weak growth and softer business conditions as reasons for reversing its call. 

“Both Q1 GDP data and the NAB business survey suggest momentum in the economy has slowed, meaning that growth has likely peaked for the cycle,” Ms Auld said. 

NAB's latest monthly business survey, published on Tuesday, revealed confidence remains weak despite a rebound, with sentiment still negative across all industries. 

The survey showed business confidence rose 10 points to -14 index points in May. 

“Confidence has lifted off a very low base, but it’s still weak, and margin pressures are likely to remain a factor for businesses in the months ahead, even with some easing in cost growth this month,” NAB head of Australian Economics Gareth Spence said. 

The NAB business survey also found capacity utilisation, or how much a business’ productive capacity is being used, fell to 81.9%, dropping below 82% for the first time in 12 months. 

“Overall, for the RBA, an economy that was overheating appears to have cooled somewhat, with conditions and capacity utilisation trending lower this year as rates have risen,” Mr Spence added. 

Recent data, including softer labour conditions and the broader economy, has also reinforced the case for holding rates steady. 

NAB argues if activity deteriorates quicker than expected, the RBA could be forced to cut rates sooner than currently anticipated. 

‘Exogenous tightening’ doing RBA’s work

Another key factor behind the bank’s shift is what it describes as “exogenous tightening”, the policy changes beyond RBA’s control that are tightening financial conditions. 

NAB noted proposed changes to housing and investment taxation under the 2026 Federal Budget are expected to weigh on both house price growth and credit demand.

“Consequently, we have made downward revisions to our forecasts for both of these variables,” Ms Auld said. 

This also aligns with emerging signals in lending markets where fixed mortgage rates have begun to move lower. 

ANZ and Macquarie have recently cut fixed home loan rates, along with some smaller lenders. 

Westpac, however, has moved in the opposite direction, nudging some fixed mortgage rates higher in line with its more hawkish economic outlook. 

Inflation still sticky

Despite the dovish turn on rates, NAB still expects core inflation to remain above the 2-3% target band until mid-2027. 

“This outlook is not dissimilar to that of the RBA, as outlined in last month’s SoMP and is likely to keep the RBA watchful around pass-through from higher input costs to final prices,” Ms Auld said. 

CPI inflation eased to 4.2% in April as transport relief pulled down headline figures, but core inflation remained elevated at 3.4%.

NAB stressed slowing demand may “short-circuit” the anticipated broad dissemination of inflationary pressures. 

“However, we are cognisant that there is still considerable uncertainty around the outlook, both with respect to activity and inflation,” Ms Auld said.

“Indeed, it is possible that consumption outcomes are stronger than we forecast… [and] it is possible that the housing downturn is not as impactful on activity as we think.”