RBA likely to leave cash rate on hold for remaining 2017, next hike to occur in early 2019: St. George Economics

The Reserve Bank of Australia (RBA) is expected to leave the cash rate on hold for the remainder of this year and in 2018. The next rate move as up is seen occurring in early 2019, St. George Economics reported.

Financial markets (using overnight-indexed swaps pricing) are attaching a probability of nearly 90 percent for a rate hike of 25 basis points by the end of next year. Financial market pricing has shortened considerably in recent months, leading the Australian 1-year bond yield to rise by 13 basis points since early September.

A recent economists’ poll of 23 institutions also shows a rate hike before the end of 2018 is also forecast by more than half of those polled. The recent weak retailing report highlighted the fragility of household consumption. However, this report did little to dent this pricing because of other domestic data, such as employment, remains firm.

"The reason why our forecast differs from financial market pricing and the economists’ poll is that we expect the Australian dollar to remain at a level that will weigh on output and inflation. Further, the risks to economic growth from high household debt and weak wages to consumption might mean the RBA waits for longer," the report said.

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