NAB Sees Hefty RBA Cuts Amid Battered Confidence, Trade War

By James Glynn

SYDNEY--The Reserve Bank of Australia will expedite interest-rate cuts in 2025 given the extreme uncertainty now confronting the world economy, according to Sally Auld, chief economist at National Australia Bank.

Despite news overnight that the Trump White House has relented on parts of its tariff policy, sparking a rebound in share prices, Auld said the economic and business environment will remain fraught.

NAB now expects the RBA to cut the official cash rate by 50 basis points at its next policy meeting in May, with significant cuts to follow in the months that follow, taking it down to 2.6% from 4.10% now.

Auld is forecasting smaller follow-up cuts in cuts in July, August, November and February.

"Headwinds from the global environment have intensified, but error bounds around our forecast are large given uncertainty remains exceptionally elevated," she added.

NAB also slightly revised up its forecast for Australia's unemployment rate in the near term, and shaved down GDP growth for 2025, with the larger RBA policy response required to keep activity on track.

"Much has changed since the RBA board last met in early April. Risks to both global and domestic growth have shifted to the downside," Auld said. "Against this backdrop, a restrictive policy stance in Australia is no longer appropriate."

The real cash rate, which takes into account the prevailing inflation rate, is well over 1%, which looks elevated relative to recent history, Auld added.

"The RBA needs to play catch up."

Australia isn't immune from the indirect impacts of the trade war, with consumer and business confidence in the firing line, Auld said.

National income and wealth impacts from weaker commodity prices and volatility in financial markets will also weigh on the economy.

"Managing the risks associated with each of these channels argues for a shift to a more pre-emptive policy response by the RBA," she said.

Write to James Glynn at james.glynn@wsj.com