HSBC: The Reserve's Hold Days Are Over

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HSBC Australia and New Zealand’s chief economist Paul Bloxham has a new note out this morning making the call for interest rate hikes in Q4.

“We remain of the view that the RBA’s easing phase is done, that the next move may be up, and we have pencilled in the next hike for Q4 this year,” he said.

From the note:

Markets have moved closer to our view over the past month. While in mid-February there was over 50bp of cash rate cuts priced in over the next year, there is now only 20bp of cuts priced in. Clearly the market still believes cuts are more likely than hikes but, in our view, much of this reflects downside global risks, rather than local developments.

Our view reflects both our optimism about China’s expected growth this year (we are forecasting growth of +8.6%) and our view that Australian monetary policy still works. This month brought further signs that local monetary policy is gaining traction.

Consumer sentiment and the housing market are improving in large part due to low interest rates. In recent weeks, consumer sentiment held onto gains made in February, with particular improvements in household’s perceptions of economic conditions and their feelings about whether it was a ‘good time to buy a major household item’.

Auction clearance rates – a timely measure of housing market conditions – were well above average in recent weeks and housing prices have continued to rise. Housing construction continued its modest upturn, with more growth expected given already low rates.

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