Some comments from Westpac chief economist Bill Evans today:
He is surprised that markets have persisted in maintaining a 90% probability of another 25 basis point rate cut by the RBA by mid next year and a 50% probability of a cut by November
Says:
- A reasonable prospect of growth in Australia at around 3% in 2016
- Reserve Bank now assessing that the unemployment rate has peaked ... which, says Evans, is a "huge hurdle for a November cut"
- RBA forecasting that growth will centre around 3.75% (around 1% above trend) in 2017
Evans adds he is sceptical about the 3.75% ... but that the RBA is likely to maintain that call well into 2016 precluding any urgency to cut rates further
- Evans has concerns on further rapid growth in lending for property investment:
- Given the historical evidence of just how quickly investor loans can grow during a boom it is likely that banks will struggle to limit growth to 10%
- Says commercial banks may hike rates fro property investors
Then adds on why this may, in turn, lead to RBA cuts ...
- Markets may be expecting that, in the event of the labour market faltering in such an environment the Bank may see the need to restore more stimulus across the economy. We are not convinced about such prospects but we are also surprised about current market pricing. This kind of dynamic might provide the explanation.
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Meanwhile ... AUD up a little today in a smallish range:
