Reserve Bank of Australia to keep rates on hold until 2021: Westpac’s Bill Evans

Westpac’s chief economist Bill Evans has made the counter-consensus call that the Reserve Bank of Australia will keep interest rates on hold until 2021, casting doubt over its forecasts, and acknowledging that financial conditions are tightening in the absence of rate hikes.

“Some may argue that we are unrealistically forecasting that Australia will completely miss the global rate hike cycle if rates remain on hold for such an extended period,” the economist wrote. “We differ from that view arguing that financial conditions are affected by more forces than just the RBA cash rate.”

“The key dynamic here is an expectation that the household can continue growing its consumption spending at around a 3 per cent pace,” which would require solid wages growth and any wealth-effect spillover from house prices to be neutralised. That seems unlikely, Mr Evans suggests.

Aside from ongoing macro-prudential supervision and regulation, “no further conventional tightening of policy through a rate hike from the Reserve Bank seems likely – even as far out as 2020.”