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17 Mar 2014
Flash: No longer expecting rate cuts; first hike in 2015 H2 - Westpac
FXStreet (Bali) - Westpac has revised its view on the RBA cash rate, to now no longer expecting rate cuts, while calling the first hike in H2 2015.
Key Quotes
Westpac has revised its profile for the RBA cash rate in 2014. Previously we expected that rates would be reduced by 25bps in both August and November. The forecast is now for flat rates throughout 2014. As before we do not forecast a rate hike until the third quarter of 2015 with a 25bp hike in both the September and December quarters."
"Our dominant theme in this cycle has been that a weak labour market would undermine consumer spending which in turn constrains investment, employment and incomes. Businesses react negatively to soft demand; an uncertain global environment and a “still high” AUD. Those forces are expected to be complemented by a number of known headwinds - mining slowdown; fiscal restraint; falling terms of trade and a resilient AUD as global growth, including in the US, disappoints."
"We still see those forces operating to moderate growth and inflation pressures but now assess that better news on employment; consumption; and business confidence will dampen those contractionary forces to exclude a sufficiently strong case to cut rates. This is in the context of a high hurdle from the perspective of the Reserve Bank to further cutting rates. Equally, however, there will be no case for higher rates for 18 months or more."
"Our previous profile for the AUD included resilience around 90¢ until the market started to forecast the anticipated rate cuts. We still see most of the contractionary forces operating in the economy but not sufficiently strong to trigger a rate cut from the RBA. We also expect a fall in the terms of trade and a higher USD. Accordingly we are retaining our directional forecast for a lower AUD through 2014 with a target end point of 87¢ by March 2015 rather than the lower 85¢ when we expected rate cuts."
Key Quotes
Westpac has revised its profile for the RBA cash rate in 2014. Previously we expected that rates would be reduced by 25bps in both August and November. The forecast is now for flat rates throughout 2014. As before we do not forecast a rate hike until the third quarter of 2015 with a 25bp hike in both the September and December quarters."
"Our dominant theme in this cycle has been that a weak labour market would undermine consumer spending which in turn constrains investment, employment and incomes. Businesses react negatively to soft demand; an uncertain global environment and a “still high” AUD. Those forces are expected to be complemented by a number of known headwinds - mining slowdown; fiscal restraint; falling terms of trade and a resilient AUD as global growth, including in the US, disappoints."
"We still see those forces operating to moderate growth and inflation pressures but now assess that better news on employment; consumption; and business confidence will dampen those contractionary forces to exclude a sufficiently strong case to cut rates. This is in the context of a high hurdle from the perspective of the Reserve Bank to further cutting rates. Equally, however, there will be no case for higher rates for 18 months or more."
"Our previous profile for the AUD included resilience around 90¢ until the market started to forecast the anticipated rate cuts. We still see most of the contractionary forces operating in the economy but not sufficiently strong to trigger a rate cut from the RBA. We also expect a fall in the terms of trade and a higher USD. Accordingly we are retaining our directional forecast for a lower AUD through 2014 with a target end point of 87¢ by March 2015 rather than the lower 85¢ when we expected rate cuts."