Ivan Colhoun, ANZ’s Chief Economist for Australia, is easily one of the best in the business and when he changes his view, I and many in the markets tend to sit up and listen.
This morning he has come out with a piece saying that we have seen the last of the RBA’s cuts and that the next move in rates will be up. Not till 2015 mind you, but up nonetheless.
The change in view should not be taken as bad news for home owners or borrowers – it’s really very positive news for business and families because the ANZ believes that growth is going to be a fairly strong 3.1% in 2014, 3.4% in 2015 and 4.4% in 2016.
The growth is going to be driven by exports while the domestic growth engine is still spluttering.
ANZ still thinks unemployment will remain in the 5.75%-6% range next year, with no big move till 2015, but the good news is that businesses and households will have more money to circulate through the Australian economy.
Consequently business conditions, which fell to a 4-year low in the NAB quarterly business survey today, should be able to bridge the gap between experience and expectation and approach something more akin to business confidence which today hit a 2-year high.
Growth like that doesn’t come without consequences for monetary policy and while the ANZ sees the cash rate at 2.5% through 2014, it expects the rate to gradually head back to 4% in 2015 and 2016.
There are risks to the ANZ’s view of course, but Australian should be pleased if Colhoun is right because even with strong growth, rates are only expected to go back to 4%.
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