/VIEW ANZ: Weakness in AU's housing market......>

RBA: /VIEW ANZ: Weakness in AU's housing market has persisted longer than we

exp.. We have revised our forecasts & now exp. to see peak-to-trough price

declines of around 10% in Sydney & Melbourne, with smaller declines elsewhere.

This doesn't derail Australia's econ outlook. We think for '18 GDP growth will

stay ~3% reached in Q1. We exp. similar growth in '19, before a slowdown in

government spending, investment & net exports sees growth drop to ~2.5% in '20.

The tighter labour market supports higher wage growth. The lift in wages helps

the outlook for inflation, with core inflation lifting to 2.3% y/y by the end

'20. Falling unemployment & rising wages would allow the RBA to conclude that

sufficient progress is being made toward the mid-point of the inflation target.

Previously, we exp. the RBA to tighten in May '19. Our weaker house price

outlook makes this timing challenging. While the RBA does not specifically

target house prices, we think it will be reluctant to start tightening policy if

house prices are still falling. Hence we have pushed the first hike to Aug '19

to allow more time for stability to emerge, with another to follow in Nov '19 &

then for the cash rate to sit at 2% in '20.