Australian home borrowers are facing a challenging year, but National Australia Bank (NAB) is forecasting relief in 2027 as the Middle East oil crisis pushes unemployment to levels last seen during COVID lockdowns.
Rate Hike Expected in May
NAB expects the Reserve Bank of Australia (RBA) to raise interest rates again on May 5, marking the third increase in 2026. However, the bank sees two rate cuts in 2027, bringing the cash rate from 4.35 percent to 3.85 percent, back to where it was before the latest hike.
Unemployment to Rise Sharply
The oil crisis is set to push unemployment from 4.3 percent to a six-year high of 4.8 percent in 2027, reaching levels last seen in late 2021 when Sydney and Melbourne were in COVID lockdowns. This economic slowdown is expected to bring inflation down from 4.3 percent to 2.3 percent next year, within the RBA's target band.
Oil Crisis Fuels Inflation
Crude oil prices staying above $US100 a barrel are pushing up the consumer price index, which NAB expects to climb from 3.7 percent to 4.3 percent, further above the RBA's 2-3 percent target. However, tighter monetary policy is expected to slow GDP growth, ensuring inflation returns to the midpoint over time.
Potential Scenarios
If the US and Iran resolve the Strait of Hormuz dispute, cheaper fuel could boost consumer spending, leading the RBA to focus more on inflation and potentially hike rates further. Conversely, if Iran's blockade continues, supply shortages could constrain growth, prompting the RBA to adopt a more dovish stance.
The futures market currently rates a May hike as a 69 percent chance.
