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No rate hike until 2020: AMP

No rate hike until 2020: AMP

The Reserve Bank’s economic forecast is “too optimistic” and the central bank is unlikely to hike the cash rate until at least 2020, according to AMP.

Stunted GDP (gross domestic product) growth, tightened lending conditions and a subdued housing market are likely to keep the cash rate on hold until 2020, AMP has claimed following its analysis of the Reserve Bank of Australia’s Statement on Monetary Policy, released on 4 May.

In its assessment of domestic economic conditions, the RBA noted that its growth outlook is “stronger than previously expected”.

“Growth in the economy is expected to be around trend in the near term and to increase to be above 3 per cent for the remainder of the forecast period,” the central bank noted.

“Consistent with this, employment is expected to grow a little faster than the working-age population and the unemployment rate is expected to decline gradually, to 5.25 per cent.”

The statement went on to say: “Financial market prices suggest that the cash rate is expected to remain unchanged this year and to increase around mid-2019.”

However, AMP claimed that it expects slow wage growth and an easing in housing market activity to stunt the rate of economic growth.

“We think the RBA’s forecasts are too optimistic and we see GDP growth tracking around 2.7 per cent over the near term,” AMP said.

“We remain cautious around the outlook for consumers in an environment of low wages growth and slowing home price growth. 

“The current lift in government infrastructure will support near-term growth, but the pipeline of projects under construction will start to wane in the second half of 2019.”

The financial services provider added that it expects the RBA to hold the cash rate “for a long time yet”.

“Our view is that domestic GDP growth will disappoint the RBA’s forecasts over the near term and keep pressure on the central bank to keep interest rates low,” AMP said.

“The tightening in bank lending standards is also a risk for consumer spending and the housing market broadly.

“We expect the RBA to remain on hold for a long time yet and we don’t see a rate hike until 2020 at the earliest.”

Earlier this month, the RBA board decided to hold the cash rate at its record low of 1.50 per cent, a record-breaking 21 months (or 19 cash rate decisions) in a row.

 [Related: New cash rate record reached]

No rate hike until 2020: AMP
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