The disease spreads

Back in August, when I began recording my thoughts on Australian interest rates in detail, institutional economic research teams were in unanimous agreement that we wouldn’t see the RBA cut interest rates any lower. In my impudence, I dissented.

Here were some of the forecasts for the first hike at the time:

  • AMP – Q1 2015
  • Barclays – Q1 2015
  • CBA – Q1 2015
  • Moody’s –  Late Q1 2015
  • St George – Q1 2015
  • StanChart – Q1 2015
  • TD Securities – Q1 2015
  • HSBC – H1 2015
  • Nomura – H1 2015
  • ANZ – Q2 2015
  • Citigroup – Q2 2015
  • UBS – Q2 2015
  • JP Morgan – Q3 2015
  • Westpac – Q3 2015
  • RBC Capital – Q4 2015
  • Goldman Sachs – Q4 2015
  • NAB – Q4 2015
  • Bank of America-Merrill Lynch – Q1 2016
  • Macquarie – Q1 2016
  • BNP-Paribas – 2016
  • Deutsche Bank – 2016

It therefore came as a small victory for this humble blogger when two of those shops abandoned their rate hike forecasts this week, and now expect cuts. Perhaps unsurprisingly, the two banks to catch my disease were among the least bullish on the timing of rate hikes.

Deutsche was first out of the gates, revealing they now expect 50bps of cuts next year, with the first in Q2:

Chief economist Adam Boyton believes the strength in the housing market that has been supporting the economy is easing.

“When we combine that with our expectations for the unemployment rate – which is that it will rise all the way through next year – all that suggests to us that there is scope for the RBA to cut rates further,” he told ABC News.

The call runs against most other economist forecasts.

Indeed it does. But perhaps not for long. Following poor national accounts data today, Goldman switched to cuts, with the first coming in March:

Goldman Sachs re-joined the bear pack on Wednesday, forecasting a 25 basis point cut in March and another in August.

“Although third-quarter GDP growth was consistent with our forecast . . . we are shifting our view on interest rates back to interest rate reduction in 2015,” the investment bank said.

“Nevertheless, revisions to the back data and the composition of the GDP data were sufficiently poor to tilt the balance of probabilities towards a rate cut in the first half of 2015 as our base case,” it said.

And NAB is leaving the window open:

National Australia Bank’s senior economist David de Garis said on Wednesday that if leading indicators for the current quarter prove erratic, the central bank might consider more easing.

“The RBA can take some comfort from recent indicators on the economy suggesting that the pace of growth has picked up to some extent,” he said.

“Should such indicators show signs of faltering, then the RBA would need to address whether the current stance of monetary policy is sufficient to aid the economy’s transitioning to higher domestic non-mining growth,” he said.

Late Q1 or early Q2 next year has been my forecast for the first cut (see here, here and here), so it’s a welcome change to have a few professional allies in what was becoming a fairly lonely position.

One by one, they’ll all come around. Though perhaps not Paul Bloxham of HSBC. The poor chap has been predicting rate hikes since 2011, shortly before the RBA started chopping away at the cash rate, taking it from 4.75% all the way down to its current 2.5%.

And it hasn’t stopped yet.

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