Westpac Chief Economist Bill Evans:
(bolding is mine)
- The Reserve Bank Board next meets on April 4.
- The Bank will decide to keep rates on hold.
- Even though income growth and inflation are too low and there remains ample spare capacity in the labour market (unemployment rate of 5.7% compared to a 'full employment' rate of around 5%) the Bank has no flexibility to cut rates.
- The evidence is clear that the rate cuts the Bank embraced last year in the face of low inflation fuelled house prices and household leverage. The Bank is concerned about possible excesses in the housing market.
- Markets accept the view that rates will remain on hold in 2017 but are pricing in at least two hikes from the Bank next year.
- We expect that growth in the economy will slow in 2018 as the residential construction boom unwinds.
- As we saw in today's report households are concerned about their finances, largely because of weak income growth. This concern is unlikely to fade in 2018 appropriately constraining household spending and discouraging investment.
- That is no environment for higher rates.
- Accordingly, we expect rates will remain on hold throughout 2018 as well.
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Evan's comments here are from Westpac's report on the consumer sentiment result for March (I posted on this report earlier)
