The National Australia Bank has bowed to the reality of recent economic data on wages, jobs and inflation and pushed its forecast for the next interest rate rise out to 2019 from late this year, but they are still around a year short of the forecast made earlier this month by the AMP’s Dr Shane Oliver for a rate rise in 2020 – but with the continuing chance of a rate ‘cut’.
The NAB’s forecast is made more interesting because its monthly surveys of business conditions and confidence are at or above record highs (especially business conditions). And yet that is not translating into higher pressure on wages and inflation.
In a note issued yesterday the NAB’s economics team said the delay to the forecast for the next rate rise was due to a lack of wage rise pressure and continuing stagnant unemployment (around 5.5% to 5.6% for much of the past year.
The bank made it clear that the decision depends on what happens to the data fr wages and employment in the meantime.
“While still very data dependent we now have the start of the rate hiking cycle in mid-2019,” the NAB said.
"We still expect the economy to strengthen, leading to a declining unemployment rate. This should eventually translate into stronger wages growth and give the RBA confidence that inflation will track back to its 2.5% target.
“However, we acknowledge there is considerable uncertainty around the timing at which wages growth will strengthen, and the time of the RBA’s next move will remain highly data dependent.”
"For some time NAB has been forecasting that if the economy were to improve as expected, then the RBA would at some point feel confident enough with the economic outlook to start the process of raising the cash rate from its current low level of 11⁄2%.
"In particular, our view has been that economic growth will strengthen over the coming year and that, with the pace of jobs growth already solid, this would lead to a declining unemployment rate and as a result upwards pressure on wages growth and inflation.
"We still consider that this is the most likely trajectory for the economy and RBA policy. However, this week’s data on wages and the labour market indicate that November 2018, our previous forecast for the first rate rise, is too early and we now expect the RBA to be on hold through the rest of this year.
"We expect once the tightening cycle starts, further rate increases will be very gradual. We are now expecting the first move to be in mid (May) 2019, with the next move after that not until late in the year (November 2019),” the NAB’s chief economist, Alan Oster said yesterday.
