- The NAB now sees only one interest rate increase from the RBA this year, down from its previous forecast for two.
- It cites weak private sector wage growth and slow progress in lowering Australian unemployment as the main factors behind its revised view.
- It still sees the RBA lifting rates in November but admits the bank may not lift rates at all this year.
The National Australia Bank (NAB) no longer sees the Reserve Bank of Australia (RBA) increasing interest rates two times this year, noting that weak wage growth and slow progress on lowering Australia’s unemployment rate will now limit the bank to one 25 basis point increase in the final quarter of the year.
“Weak wages growth and slow progress reducing unemployment means it is now less likely that the RBA will raise rates twice in 2018,” the NAB says.
“We now see the RBA raising rates only once in late 2018 with November 2018 as the most likely start date for a gradual RBA rate hiking cycle.”
The bank described last week’s Australian wage price index report as a “little disappointing”.
“While total wages did increase a touch 0.55%, there was no acceleration in private wages growth,” it says.
“That stands in contrast to traditional models that suggest wage increases are overdue and runs counter to employers’ reports that it is getting more difficult to find suitable labour.”
However, by the end of this year, the NAB expects that GDP growth will be near 3% with the unemployment rate approaching 5%. It also sees underlying inflation approaching the bottom of the RBA’s 2-3% inflation target.
“That, together with increasing tightness in employers’ ability to find suitable labour, may finally see private sector wages start to moderately edge up,” it says, underpinning why it still expects rates to increase.
However, if there is a risk to its new forecast, the NAB says it is that the RBA will leave rates unchanged this year.
“Much will still depend on the data flow,” it says. “It is not impossible that the RBA stays on hold for all of 2018 and raises rates in early 2019.”
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