One of Australia's most hawkish forecasters no longer sees RBA rate hikes this year

Michael Dodge/ Getty Images.
  • Paul Bloxham, HSBC’s Chief Australian Economist, has pushed back his forecast for when the RBA will begin lifting official interest rates.
  • He now sees the first hike arriving in the middle of next year, rather than in Q4 of this year.
  • Bloxham says firm commodity prices and further tightening in labour market conditions will lead to inflation moving back towards the midpoint of the RBA’s 2-3% target, allowing the bank to lift rates for the first time since late 2010.
  • Financial markets strongly disagree, with a 25 basis point rate cut now fully priced by this time next year.

Paul Bloxham, HSBC’s Chief Australian Economist, is well renowned for being among the most hawkish forecasters in Australia in terms of expectations for RBA rate hikes.

However, following the RBA’s adoption of a clear neutral bias on the outlook for the cash rate — an acknowledgement that the risks for the next move are now evenly balanced — Bloxham, like many other forecasters, now believes the RBA won’t be hiking interest rates this year.

“Given the shift in the RBA’s tone, the slow progress in lifting inflation back to target, and that the RBA is likely to be tolerant of some lift in price pressures, given a long period of below target inflation, we push back the timing of expected hikes,” he says.

“We still see the RBA’s next move as likely to up, but now have it pencilled in for the middle of 2020, later than in Q4 this year as previously forecast.”

While Bloxham, like the RBA, acknowledges that downside risks have increased in recent months, particularly in terms of negative spillover effects into other sectors from Australia’s housing downturn, Bloxham is holding firm on the view that it won’t derail the economy.

“Given HSBC’s positive view on the outlook for growth in China, the support this is delivering for commodity prices, and our view — much like the RBA’s — that the local housing market cooling should remain orderly, we expect Australia’s labour market to continue to tighten,” he says.

Bloxham’s view is very different to that of financial markets with a 25 basis point rate cut, taking the cash rate to 1.25%, fully priced by this time next year.

An increasing number of economists also share this view, including the team at UBS who now see the RBA cutting the cash rate to 1% by the middle of 2020.

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