Australia ANZ Joins NAB, CBA in 1st RBA Rise Forecast in 2018

--Westpac Only Big Four Bank Expecting Cash Rate at 1.5% in 2018, 2019

By Sophia Rodrigues

     SYDNEY (MNI) - ANZ Bank has revised its view on the Reserve Bank of

Australia's cash rate -- forecasting a first rise in May 2018 and joining two of

the other three big four banks in predicting rate rises in 2018.

     ANZ's 25 bps rise forecast for May 2018 is ahead of the National

Australia's forecast for a first rise in August and the fourth quarter by

Commonwealth Bank of Australia. ANZ expects a second rise in the second half of

2018.

     With ANZ's change in view Westpac is the only big four bank with an

expectation for the RBA cash rate to remain unchanged at 1.5% through 2018 and

2019.

     ANZ economists David Plank and Felicity Emmett see the two rises in 2018 as

a reversal of the two cash-rate cuts in 2016. After these rises they see the RBA

standing pat in 2019 as highly indebted households digest the effect of higher

mortgage rates.

     "The change to our view on the RBA reflects an outlook for growth that is a

touch more positive than previously and an easing to the downside risks to both

growth and inflation. We see growth of 2.9% in 2018 and 3% in 2019 with the

unemployment rate declining to 5.3% by the end of next year," Plank and Emmett

said.

     Their confidence in rate rises in 2018 is boosted by the hawkish shift in

the RBA's language -- as indicated by their own RBA Bias Index.

     The risks to their forecast are weighted toward fewer rather than more. 

     "A strong rally in the AUD toward A$0.90, for instance, could be enough to

defer a rate hike in 2018. Likewise, evidence that core inflation or wages are

slowing again would rule out a rate hike in 2018," they said.

     "We struggle to see much risk of more than 50 bps of hikes in 2018 given

indebted households though a sharply weaker AUD that was due to portfolio shifts

rather than weaker global growth is one possible (if unlikely) trigger," they

said.

     Among others in a MNI poll Goldman Sachs, HSBC and Bank of America-Merrill

Lynch are the most hawkish with rate-rise forecasts for the first quarter of

2018.

     J.P.Morgan is still forecasting a rate cut -- expecting two reductions in

the first half of 2018. Its recent commentary suggests conviction for further

cuts remains high -- though the timing may be uncertain.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]