Westpac continue to expect the RBA to remain on hold until at least mid-2019
Readers of the Westpac Market Outlook publication for September will be aware that Westpac continues to forecast the cash rate to remain on hold out to mid-2019. Indeed we are not convinced that the cash rate will need to rise any time throughout the course of 2017, 2018 or 2019.
This approach is clearly different to the thinking of the Reserve Bank Governor himself who expects to be tightening over that period (note his speech on "the next chapter” which was delivered yesterday).
However, we continue to point out that the RBA has a very different growth outlook for the Australian economy and Australia’s trading partners to our own. The RBA expects growth in Australia to be 3.25% in 2018 and 3.5% in 2019 (above trend of 2.75%). Westpac expects a below trend pace of 2.5% in both years.
The RBA is also forecasting 2% underlying inflation in 2017 and 2018 (bottom of target band) to be followed by 2.5% in 2019. Underlying inflation is currently running at 1.8% (to June) and the upcoming revised weights are likely to reduce annual underlying inflation by 0.2-0.3%.
Going forward, the RBA’s inflation forecasts also look to be overly optimistic and are likely to be subject to downward revision. Recall that in 2016 when the RBA was forced to revise its inflation forecasts below 2% it believed it had little choice but to cut rates.
22 Sep 2017 - 09:35- Economic Commentary- Source: Westpac
Subscribe Now to RANsquawk
Click here for a 1 week free trial
RANsquawk provides audio news and commentary for over 15,000professional traders and brokers worldwide. Services include:
- Real-time audio coverage from 0630 to 2200 London time plus Asia-Pac 2200 to 1000 London time
- Teams of analysts covering equities, fixed income, FX, energy, and metals markets
- Real-time scrolling news service with instant analysis
- Daily and weekly pre-market research and calendars
- Video updates covering near-term key risk events & primary trading themes
- One-to-one chat with our expert analysts