Latest NewsBanks Push Back Rate Expectations: Second Half of the YearThursday, 04 May 2017

Three of the four big banks expect the RBA will leave interest rates unchanged until the second half of this year.

If Reserve Bank governor Glenn Stevens’ post-board meeting statement last Tuesday appeared bland, it was probably to convey to borrowers that they shouldn’t be worried about another interest rate rise just yet.

Economists generally agree that the central bank has done a lot of the heavy-duty work in taming inflation pressures that would result from the mining boom and the massive investment plans it has generated.

It raised the cash rate four times last year and, with the additional increases on mortgage rates by home lenders, Mr Stevens believes the current stance of policy is ‘‘appropriate’’.

The cash rate has stood at 4.75 per cent since November.

Only the country’s biggest home lender, the Commonwealth Bank, expects a more imminent increase, but even then not until May.

Westpac’s CEO Gail Kelly told ABC television on Monday that she agreed with her chief economist, Bill Evans, that rates will be on hold for a while.

‘‘In fact, he would argue that there’s only likely to be one interest rate increase and that would be probably in the September quarter,’’ she said.

Still, crucial data will be released over the next two days that will show whether there has been any notable change in consumer behaviour towards spending rather than saving, and if there still remains strong demand for workers in an already tight labour market.

National Australia Bank has pushed back the timing of its prediction for the next rate move from May, pencilling in a 25 basis point increase in the central bank’s cash rate to 5.00 per cent in August.

Releasing its monthly business survey today, NAB said there should be greater evidence of the income and investment effects of the mining boom and the reconstruction task from this summer’s natural disasters by the middle of the year.

But, it said, there are ‘‘significant upside risks’’ to its assumptions, not least from a further sudden tightening in the labour market.

‘‘Any tendency for wage pressures to increase and become embedded in inflation expectations would see the (RBA) adopting a more aggressive monetary policy stance than we have assumed,’’ it said.

ANZ’s head of Australian macro-economics, Katie Dean, is expecting the next interest rate rise in July, and that would only be brought forward if there are further large gains in employment and a strong rebound in retail sales over the next few months.

‘‘But I don’t think that is likely,’’ she said.

Still, CBA is concerned about growing inflation pressures with the labour market already at what is considered full employment with an unemployment rate of just 5 per cent.

Recent data also showed a large upgrade in businesses’ capital expenditure (capex) plans that could put pressure on prices, while it believes that the benefit of a high Australian dollar in taming inflation pressure has probably run its course.

At the same time, consumers have seen strong gains in their incomes.

‘‘Whether that gets swallowed up paying utilities, rents, insurance, rising petrol prices - where the consumer dollar falls is obviously the big question for the retail sector ahead,’’ CBA economist James McIntyre said.

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