VIEW: Westpac’s Evans Looking For 40bp Hike In June

Westpac chief economist Bill Evans is now “forecasting a substantial lift in annual underlying inflation for the March quarter to 3.4% and a fall in the unemployment rate from 4% to 3.8% in April. On the basis of those forecasts we expect the RBA will decide to lift the cash rate by 40 basis points at its Board meeting on June 7.”

• “We accept that there is a risk that the Board would be concerned about such a large move at the beginning of the cycle with implications for Confidence.”
• “A possibility might be for a more cautious 25 basis point lift in June to be followed by the 40 basis point move in July.”
• “However, we anticipate that market and media expectations will shift towards a 40 basis point move over the next six weeks and the anticipated shock to confidence will be contained.”
• “This decision will be in the context of the Federal Reserve Open Market Committee (FOMC) having lifted the federal funds rate by 50 basis points on May 4 and the certain prospect of a further 50 basis point increase at the June FOMC meeting which is scheduled for the week after the RBA’s June Board meeting.”
• “Both the Bank of Canada (April 13) and the Reserve Bank of New Zealand (April 13) have recently opted for 50 basis point increases in their policy rates.”