RBA to hold rates steady next week - Westpac

Bill Evans, Chief Economist at Westpac offers insights on what to expect from the RBA monetary policy decision due on the cards next week.

Key Quotes:

“RBA growth forecast in 2018 is 2.75%-3.75%%

Well above our (WPAC's) forecast of around 2.5% (with downside risks)

“Our forecast for a slowdown in 2018 is not consistent with rate hikes - below trend growth signals steady rates at best”

“(RBA Governor Lowe) points out that inflation is below the target range ( "a bit low") and the unemployment rate is "a bit high"

“(WPAC) would assess full employment at around 5% so, at 5.8%, there is clear excess capacity in the labour market”

"The main effect (of a rate cut) would be more borrowing for housing, pushing up house prices..."

“Given that both Sydney and Melbourne prices are up 14% (six month annualised - Core Logic data) the Bank and APRA may be considering even tighter macro prudential policies”

“With the economy slowing and macro prudential policies further tightening housing markets, the risks to rates in 2018 will be to the downside rather the upside as currently expected by markets”

“(RBA Governor Lowe) He accepts that the AUD is probably around fair value but questioned the feed-back to activity from higher commodity prices with miners apparently reluctant to increase capacity and wage pressures in the sector continuing to ease”