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ANZ reckons the RBA is done cutting interest rates

Scott Olson/Getty Images

With the non-mining sectors of the Australian economy gathering steam and risks around the global economy easing, ANZ has revised its forecast for Australian interest rates in the period ahead, forecasting that the RBA will now leave the cash rate steady at 2.0% this year and next.

“With the economy on a slightly firmer footing and the risks around the global outlook dissipating, we now think further monetary policy easing is less likely and that the Reserve Bank is more likely to keep the cash rate unchanged at 2%,” said Felicity Emmett, head of Australian economics at the bank.

“While the global outlook remains challenged and the resilience of the AUD suggests it won’t provide as much stimulus this year, business surveys suggest that the recovery in non-mining activity is gaining traction. Moreover, the labour market is coming off a much better base, with the unemployment rate now down to 5.8%,” she added.

Previously ANZ saw the RBA cutting the cash rate twice in 2016, something that would have seen the cash rate fall to a fresh record low of 1.5% had their call come to fruition.

“Our call for cuts made in September last year was based on a deteriorating global backdrop as well as fading stimulus from the housing sector and the lower AUD. It also predated the surprising strength in the labour market data late last year,” notes Emmett.

“In September last year, our view was that further inroads into the unemployment rate would be difficult and we saw greater risk that unemployment worsened.”

The recent rebound in commodity prices, suggesting that the risks around global demand are less tilted to the downside, was also a factor behind the decision.

Emmett suggests that the domestic economic recovery is likely to remain “a slow grind”, predicting that a further decline in the unemployment rate — currently 5.8% — will likely be “hard won”. As such, the bank still suggests that risks for interest rates remain tilted to the downside.

The forecast change brings ANZ in line with forecasts from the CBA, Westpac and the NAB who all currently predict that the cash rate will remain unchanged at 2.0% this year.

Earlier this month Warren Hogan, ANZ’s long-standing chief economist, departed the bank, suggesting that this too may have been a factor behind the forecast change.

In response to the news, the Australian dollar has jumped higher in recent trade, rising to as high at .7648 against the US dollar before easing in recent trade.

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