ANZ tips first interest rate for Australia May 2019

SYDNEY – ANZ Bank is predicting May 2019 as the earliest likely timing for the first rate hike, in the absence of wage pressure emerging earlier than expected.  “Greater clarity about the RBA’s reaction function most likely rules out a rate hike in 2018, in our view,” an ANZ  research report says. “This is a shift from our previous expectation of two rate hikes.”

In an address on February 8, Reserve Bank  Governor emphasised a need to make progress toward the mid-point of the target band before tightening policy.

“Previously we had thought stabilisation around the bottom of the band would be enough for the RBA to start removing the additional accommodation it put in place in 2016,” ANZ says.

“We think it important to note that the RBA emphasis is on “further progress,” rather than actually reaching the mid-point. This implies to us that the RBA doesn’t need inflation at the mid-point before it tightens. We think wages will be the key input into its assessment of whether sufficient progress is being made.

“Our forecasts have the Wage Price Index (WPI) above 2.5% by the end of 2018. We think this will provide the evidence of progress that the RBA requires. But we won’t know if this is right until the latter part of February 2019.

“We are refraining from making an explicit call on timing in 2019, for now, other than to say we think two rate hikes are more likely than not.”  www.live.anz.com (ATI).