HSBC: Australia's Interest Rates Probably Won't Increase Until 2015

Photo: Getty/Matt Cardy

HSBC has just dropped a hint that it doesn’t expect the RBA to raise interest rates until next year.

The bank’s chief economist Paul Bloxham said he expected Australia’s unemployment rate to peak in the second half of 2014 before hiring gradually picks up into 2015 and, as Australia transitions away from a mining-led economy, the rebalancing act should be “a net creator of jobs”.

In a note today, Bloxham went on to say the RBA would need to be convinced the unemployment rate had passed its peak before it would consider any lift.

“We expect the unemployment rate to peak in H2 2014, before falling through 2015. In our view, the unemployment rate needs to be convincingly past its peak before the RBA would consider lifting rates.”

The unemployment rate jumped to a decade high of 6.4% in July before posting a surprise fall to 6.1% in August.

Bloxham explained Australia’s glacial wage growth, which he said was at its slowest pace in 17 years, should improve if the dollar remained lower and the unemployment rate dropped.

He noted that despite Australia’s output expanding, the income it generated had been growing more slowly, something which was putting pressure on household incomes.

“While slower wages growth subtracts from demand in the economy, which is negative, it also helps to improve Australia‚Äôs competitiveness, which should encourage more local hiring over time,” he said.

The Aussie dollar gave Australian exporters (including miners and manufacturers) a little reprieve this month, falling below the $US0.90 cent mark. The drop should improve Australia’s international competitiveness.

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