RBA to stay on hold with no significant change to forecasts – Westpac

Bill Evans, Chief Economist at NAB, suggests that the Australian Reserve Bank Board is certain to hold rates steady when they meet on 2^nd May and are not likely to make any significant change in its forecasts.

Key Quotes

“In fact Westpac has argued consistently since May last year that, after an expected cut in August 2016, rates would be held steady for the remainder of 2016 and 2017. Earlier this year we extended that view with the expectation that the Bank would also hold rates steady through 2018.”

“Overall, while the employment report may have been somewhat welcome to the spectre of spare capacity in the economy weighing on inflation; labour markets and wages would still be a concern for the authorities.”

“The situation around housing markets is more unclear with uncertainty around the impact of new macro prudential policies – a 30% cap on the proportion of new loans that are 'interest only' (currently 62% of investor loans and 23% of owner occupier loans are interest only).”

“Our call for steady rates assumes the persistence of the excess capacity in goods; services; and labour markets as exemplified in recent data releases without any threatening collapse in house prices – rather a gradual slow down through the remainder of 2017 and 2018. A sharp retraction along the lines of 2016 is still highly unlikely to draw further rate cuts from the Bank given the experience of 2016/17.”

“The Reserve Bank will also release its quarterly Statement on Monetary Policy (SoMP) on May 5. Our major interest will be in the growth and inflation forecasts along with some more colour to the risks.”