Three of Australia’s four biggest banks now agree on when the Reserve Bank of Australia (RBA) is likely to start cutting interest rates from their current level of 4.35 percent, although that consensus has only begun to take shape in recent weeks.

The latest bank to adjust its forecast is National Australia Bank (NAB), which now expects the RBA to start cutting interest rates in February 2025, moving the timetable upwards from May 2025.

“From there, we continue to see a steady profile of one cut per quarter to 3.10 percent in early 2026,” NAB’s economics team said in a statement on Monday.

While acknowledging that domestic inflationary pressures are cooling, the bank acknowledged that this process is still gradual and maintained that the conditions to cut interest rates were unlikely to be in place before the end of the year.

“Risk is skewed to first decline earlier in 2025. and today's change recognizes that the balance of risks has probably shifted enough for the RBA to feel comfortable tapering a little earlier than we had previously expected. Our view remains that RBA cuts will be later and shallower than many other central banks."

Australia's biggest bank remains on the sidelines, however, expecting fiscal easing, among other data, to prompt the RBA to cut rates this year.

The bank, which previously forecast a rate cut in November, said recently that the strength of employment growth, combined with still relatively hawkish rhetoric from the RBA governor, meant that "we now see December as the more likely month to start of normalizing the exchange rate'.

"August labor market data was stronger than we expected," said the bank's economist Gareth Aird.

"In other words, the recent strengthening of labor market data means that the 3Q24 contracted CPI average in line with our forecast is unlikely to be enough for the RBA to be willing to cut interest rates in November .”

Instead, Aird now believes that by December the RBA will have a comprehensive view of relevant data, including quarterly inflation data, for decision-making.

"We now believe that this fuller set of data will need to be seen and assessed by the RBA board if it is to be willing to join a host of other central banks in cutting rates in 2024," the economist said.

Westpac and ANZ hold the course

Australia's third- and fourth-largest banks have not changed their forecasts for some time, with both predicting the central bank will target cuts in early 2025.

Following the RBA's latest monetary policy decision, Westpac chief economist Lucy Ellis said this week that she saw no reason to change her current view.

“The RBA will remain on hold this year and start cutting interest rates from February. There is uncertainty surrounding this if events turn out much differently than expected. Overall, however, we see the RBA board as slightly more stable compared to last month,” Ellis said.

A key – and promising – development, she noted, is that the RBA no longer cites unsustainable wage growth in its media statements.

While Westpac expects the cash rate to drop to 3.35 per cent at the end of next year, ANZ is predicting a less aggressive cut cycle.

"The RBA's focus going forward will be firmly on the short-run average measure of inflation," ANZ said earlier this month.

"We expect the first cut to be in February 2025, with the cash rate ending this year at 3.60 percent, marking a cycle low."

He added that risks around the timing of the rate cut cycle currently appear skewed towards a later start.

The CBA is the most optimistic of the bunch when it comes to the number of cuts it expects the RBA to implement next year. Namely, according to Aird, the central bank will make five rate cuts of 0.25 percent, bringing the cash rate down to 3.10 percent by the end of 2025.