When it comes to the Reserve Bank of Australia’s (RBA) cash rate movements next year, the Big Four have diverging opinions.
In mid-September, National Australia Bank (NAB) forecasted a pair of 25 base point rises in August and November 2018, bringing the RBA’s cash rate to 2%. These projected changes were attributed to a stronger labour market, GDP growth, and other factors.
In the same month, Australia and New Zealand Banking Group (ANZ) became the second member of the Big Four to forecast a hawkish RBA next year. The Melbourne-based bank said the Reserve Bank will raise interest rates twice in 2018 to 2%.
ANZ’s revised model was also driven by a more positive view on the domestic economy, as both growth and inflation are picking up, while the unemployment rate is dipping.
“In sum our outlook for 2018 is a touch more positive than before, reflecting a stronger outlook for non-mining business investment, the strength in public sector spending [not only in the infrastructure space] and a shallower dip in residential construction than previously expected,” David Plank, ANZ’s head of Australian economics, said in a note to clients.
Meanwhile, analysts from Commonwealth Bank of Australia (CBA) forecast one 25 basis point rise in the fourth quarter of next year to 1.75%. In contrast, Westpac Banking Corporation believes the central bank will not move rates at all in 2018, keeping the official cash rate at a record low of 1.5%.
Aussies should monitor developments in Canada
ANZ economists David Wilson and Jo Masters told the Domain Group earlier this month that homeowners and property investors have nine months to prepare themselves for higher interest rates and tighter lending restrictions.
Wilson and Masters said the Australian housing market was very similar to the Canadian housing market. “Canada is arguably ahead of Australia in its economic and policy cycles, so watching developments there can be useful for those monitoring the Australian economy,” they said.
Both countries have tightened their macro-prudential measures and have raised interest rates in an attempt to control their hottest housing markets.
“Canada is nine months ahead in terms of monetary tightening,” Masters said, referencing the two recent interest rate hikes by Canada’s central bank, the Bank of Canada (BoC).
Canada’s interest rates have come off at a lower base than Australia’s, with hikes in July and September raising the official cash rate to just 1%.
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