Westpac Sees RBA on hold despite dovish market pricing

Westpac chief economist Bill Evans sees the Reserve Bank of Australia keeping interest rates on hold well into next year, even as the market prices in a high chance of a cut by November. Westpac chief economist Bill Evans is one of few economists who believe the RBA is done easing for now, and sees interest rates remaining on hold well into 2016.

In contrast, the market is pricing in a 50% chance of a rate cut by November, and a near 90% chance of a cut by early 2016.

"This is despite the likelihood of Federal Reserve (Fed) rate hikes (our central view) beginning in September; a reasonable prospect of growth in Australia at around 3% in 2016; the Reserve Bank now assessing that the unemployment rate has peaked (huge hurdle for a November cut) and the RBA forecasting that growth will centre around 3.75% (around 1% above trend) in 2017," Evans wrote in a recent note.

While the RBA has maintained a slight easing bias, RBA Governor Glenn Stevens has sounded more positive on several fronts, particularly employment and the level of the Australian dollar. For the first time in several years the RBA indicated that the Australian dollar was not overvalued when the bank delivered its last policy statement on August 4, instead saying that the currency was "adjusting to the significant declines in key commodity prices."