Having previously forecast that the RBA would institute two 25 basis point interest rate hikes in the second half of 2019, National Australia Bank (NAB) isn’t expecting the rises to come until the second half of 2020.
Markets & Money is actually of the opinion (and has been for months) that these forecasts will inevitably change, reversing into cuts as the months go by.
To understand why this could happen, you need to see these three charts right here.
Falling house prices driving NAB’s forecast
As per Business Insider, NAB’s chief economist notes that,
‘Falling house prices suggest a bigger impact on housing construction than previously incorporated and additional concerns about the consumer, though low rates and unemployment are important offsets.’
Indeed, with a variety of risks in the housing market and the prospect of a global recession on the cards, cuts could happen in the 12–18-month range.
But the RBA has not left itself much room to maneuver, meaning they could cut rates to zero in the event of a market collapse.
If Markets & Money’s controversial economist Phil Anderson is correct, interest rates will plunge sooner rather than later. Find out how to profit in the event of a market collapse — the report is available for free here.
Labour market problems creating downward pressure for RBA
One of the key factors the RBA looks at is unemployment. They manipulate interest rates to ideally keep the most people possible in a job.
Unemployment is only one part of the story however. Its cousin, wage growth, is frequently ignored.
As it stands, wage growth remains sluggish, and unemployment figures though low, are largely an illusion as there is an 8.3% underemployment rate according to the ABS:
Source: Australian Bureau of Statistics
The significant gap between unemployment and underemployment is worrying for a couple of reasons.
The first reason is that there’s a huge amount of slack remaining in the labour market — these are people who have jobs but need more work, and as a result don’t show up in the unemployment statistics that get bandied about whenever someone wants to point to the health of the Aussie economy.
The second reason is that given this slack, any improvement in the economy will take a longer time to show up in wage growth. This is because employers will draw from the pool of underemployed people before needing to improve wages to compete for labour.
So throw on your rose-tinted glasses if you’d like, but the signals are out there pointing to a change in interest rate policy and forecasts relatively soon.
You could expect the Big Four banks to change tack again if events in the housing market and labour market continue the way they have been going.
For Markets & Money