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

continue.

     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

2018.

     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.

     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: sophia.rodrigues@marketnews.com

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