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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities

The Reserve Bank Board Minutes released last week again indicated that monetary policy is on hold for the foreseeable future, assuming the economy evolves as the RBA expects. Certain areas of the economy appear to have improved in recent months (including consumer spending and business conditions), as well as strong housing data for some time now, which is necessary to offset the expected weakness in mining investment and achieve the RBA’s growth forecast.

This was probably the catalyst for Westpac to change their prediction on the official cash rate last week. Up until now, Westpac chief economist Bill Evans was the most bearish of Australian economists, predicting two more rate cuts by the RBA. Last week however, Mr Evans dropped this expectation and he is now predicting the next move in rates will be a rise – a significant change in view for market followers. There is however still a wide range of forecasts from economists for the official cash rate this (and next) year as indicated in the chart below.

According to the latest Bloomberg News survey of 32 Australian economists, 12 forecasters are predicting at least one rate increase from the RBA by the end of this year. The median forecast is for a rise in the first quarter of 2015.



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