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No More Rate Cuts: Why Bill Evans Changed His Call On The RBA For This Year

Bill Evans, Westpac / YouTube

Bill Evans is Chief Economist at Westpac and one of the big four or five in Australian Economics along with Alan Oster at the NAB, Warren Hogan at the ANZ, Michael Blythe at the CBA and Saul Eslake at Bank of America Merril Lynch.

So when he makes a call on the currency or interest rates markets take notice.

For some time now Evans, and Oster – along with Tim Toohey at Goldman Sachs – have hung onto a belief that the RBA would be cutting rates again in late 2014. But today Westpac has formally changed the call from one more easing to a period of stability before a rate rise of 25 basis points in both the September and December quarters of 2015.

Evans says the “better news on employment; consumption; and business confidence will dampen those contractionary forces to exclude a sufficiently strong case to cut rates.”

“Those contractionary forces” he is talking about are the “mining slowdown; fiscal restraint; falling terms of trade and a resilient AUD as global growth,including in the US, disappoints.”

It’s hardly a glowing endorsement of growth in Australia or a positive economic outlook but an economic outlook which nonetheless is not weak enough to force the RBA, which now seems to have a “high hurdle”, to conduct any more rate cuts.

This means that Evans has also increased Westpac’s year end forecast for the Aussie dollar to 87 cents from 85 cents previously.

As a mark of the respect with which local traders hold Evans and the Westpac Economics team more broadly the Aussie dollar has risen to 0.9050 from around 0.9020 prior to the announcement. Likewise 90 day bank bill futures have risen across the curve between 3 and 5 points while 3 year bond futures are off 5 points.

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