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Repeats Story Initially Transmitted at 09:33 GMT Sep 25/05:33 EST Sep 25
--But JP Morgan's Auld Still Sees Risk of Lower Rates If Growth Disappoints
By Sophia Rodrigues
     SYDNEY (MNI) - JP Morgan analysts have revised their outlook for the
Reserve Bank of Australia cash rate, no longer forecasting a further cut and now
expecting the rate to remain on hold for longer but with risk still to the
     With this change in view, none of the 21 analysts in an MNI survey expect
the cash rate to go below the current 1.5% level. Several expect the first rate
hike in 2018 while some expect the cash rate to remain on hold in both 2018 and
     Prior to this, JP Morgan's forecast was for two cuts in the cash rate in
the first half of next year.
     In terms of timing, Goldman Sachs, HSBC and Bank of America-Merrill Lynch
are the most hawkish, forecasting the first rate rise in the first quarter next
     Among the big four Australian banks, ANZ expects the first hike in May
2018, following by National Australia Bank in August and Commonwealth Bank in
November next year. Westpac is alone among the big four to see the cash rate on
hold until at least end-2019.
     In a note published Monday, JP Morgan analysts led by Sally Auld
acknowledged they have been wrong in their call for further easing.
     At the same time, the change is view in not a result of an upgrade in view
on the economy, rather it is an acknowledgement that the RBA is now more
     "The RBA's reaction function has changed, such that it is willing to
tolerate a longer period of sub-target inflation in order not to increase risks
to household balance sheets. This shift in focus has been made easier by strong
global growth outcomes, despite domestic growth running below trend in 2016/17.
So policy on hold for the foreseeable future now appears to be the most likely
path for the RBA cash rate," Auld wrote in the note.
     Auld warned that the market is underestimating the RBA's sensitivity to
even a modest deterioration in cyclical conditions and that the high levels of
household debt have the potential to amplify the impact of any negative shock.
     "All this leaves us with a bias to think that the RBA is on hold for the
foreseeable future, with the risk of lower rates at some point if growth
disappoints," Auld wrote.
     The money market is pricing in close to a 64% chance of a 25bps hike in May
2018, down slightly from 70% pricing last Friday.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:

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