Comments from the bank's chief economist Bill Evans via his analysis of today's Westpac leading index for October: +0.13% m/m (prior +0.08%)
The Reserve Bank Board next meets on December 5
- The Board is certain to keep rates on hold for the 15th consecutive meeting.
The Reserve Bank released its November Statement on Monetary Policy on November 10. There were some significant changes in the Bank's forecasts in this document. The Bank lowered its forecast for underlying inflation in 2018 to 1.75%, below the bottom of the 2-3% target zone. This compares with the forecast in the August Statement of 1.5-2.5% (a mid-point at the bottom of the target zone). Furthermore, it is now forecasting underlying inflation at 2% in 2019 - down from 2-3% in August.
It continues to forecast growth of 3.25% in 2018 - 0.5% above
potential growth of 2.75% although it has lowered its forecast for
growth in 2019 from 3-4% to 3.25%.
Our interpretation of these
forecast changes is that whereas in August the Bank expected to be
raising rates some time in 2018 that prospect is now much less clear.
In fact, if their lower inflation forecasts prove correct the Bank is unlikely to move in 2018.
Markets and most commentators continue to expect a higher cash rate in 2018, although this conviction has eased in recent weeks.
We are maintaining our long held view that rates will remain on hold through 2018.
(bolding mine)
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