ANZ no longer sees the RBA hiking rates this year

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ANZ Bank has abandoned its call for two interest rate hikes from the Reserve Bank of Australia (RBA) this year.

“We no longer expect a rate hike in 2018, following the greater than expected emphasis on the mid-point of the inflation target band and increased comfort on financial stability risks in the RBA Governor’s speech on Thursday evening,” said David Plank, head of Australian Economics at ANZ.

Here’s a couple of key paragraphs from ANZ’s note explaining the decision.

The Governor highlighted the need “to make further progress in reducing unemployment and having inflation return to the midpoint of the target range. If we do make that progress, at some point it will be appropriate for interest rates in Australia to also start moving up.” What’s more, the Bank thinks “that progress is likely to be only gradual.” Critically, “a lift in wage growth is likely to be necessary for inflation to average around the midpoint of the 2-3 per cent medium-term inflation target.” We think it important that Governor Lowe specifically referenced the midpoint of the target range.

Of further importance, the RBA is much more comfortable with the risks around financial stability, with the Governor saying that “on balance then, from a macro stability perspective, the situation looks less risky than it was a while ago.” This is in part a consequence of the measures taken by the regulators to “improve the quality of lending in Australia”, as well as slower house price growth.

ANZ is leaving its cash rate forecasts under review until the release of Australia’s Q4 Wage Price Index on February 21.

“For now we’ll leave the precise timing of the RBA’s first move open, other than to rule out any move in 2018 and pencil in a couple of rate hikes for 2019,” says Plank.

“We will also continue to closely monitor developments in the housing market.”

ANZ was one of the most hawkish forecasters in the market, previously predicting that the RBA would hike rates twice this year starting in May.

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