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MNI INTERVIEW: Westpac Evans Sticking With 2018 RBA Hold Fcast

--Evans Will Publish View Beyond June 2019 End of This Week
By Sophia Rodrigues
     SYDNEY (MNI) - Westpac's chief economist Bill Evans -- the lone voice among
the big four banks to forecast an unchanged Reserve Bank of Australia cash rate
in 2018 -- is not yet ready to budge from his lonely view.
     Evans is forecasting the RBA cash rate to remain on hold at 1.5% until June
2019. He doesn't have a forecast for the period after that and plans to issue
that forecast at the end of this week when Westpac publishes the weekly report.
     What is clear is that Evans is not ready to follow the other three big
banks in forecasting the first RBA hike in 2018.
     "We understand that the RBA is signalling a readiness to hike the cash rate
but our forecasts for the economy are different to them," Evans told Market
News. He pointed to his forecast for below-trend growth of 2.5% in 2018 compared
with RBA's forecast for above-trend 3.25%.
     Evans says his view is based on the income story, and with real wage growth
at just 0.5%, he believes it is hard to sustain household consumption growth at
the level the RBA is forecasting.
     Evans is not as optimistic as the RBA on the wage growth story. In the
minutes of the September board meeting, the RBA said a gradual increase in
growth in wages and inflation was expected as the spare capacity in the labor
market was reduced and the economy continued to strengthen, supported by the low
level of interest rates.
     While Evans' view on the RBA cash rate is based on the general outlook for
the economy, the three things that could together lead to a change of view would
be faster wage growth, pick-up in non-mining investment and continued strong
employment growth.
     "If employment continues to grow around 3% pace, it would be a different
story," Evans said, adding, his view is that just as employment growth had
undershot before, it may have overshot this year, and this pace is unlikely to
     The latest labor force survey published by the Australian Bureau of
Statistics last week, showed a strong 54,200 rise in employed numbers in August
and an increase in labor participation rate that left the unemployment rate
unchanged at 5.6%. The data showed employment grew 2.7% y/y in September. 
     Earlier Wednesday, ANZ Bank revised its view on the RBA 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
Bank'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
     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
     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.
     Meanwhile, the money market is pricing close to 80% chance of a 25bps hike
in May 2018.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$,MX$$$$]

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