NAB turfs cash rate call, now sees RBA on hold for another full year

Disappointing economic data has seen one of the nation’s biggest economists this week steer sharply away from a previously upbeat forecast.

Less than three months ago, NAB economists believed a strengthening Australian economy would see the Reserve Bank hike interest rates twice in 2018.

Now it expects no move for another full year, as the central bank looks content extending its record-breaking period of inaction.

NAB reviewed its economics forecast in February, changing its previous prediction from two single rate hikes this year to one, which it tipped to be in November.

On Monday, the bank released another update to its forecast – no move until mid-2019 – and that prediction is now “data dependent”.

“The change reflects the fact there is no sign yet of stronger wages growth and unemployment has been stuck around 5.5 per cent for the best part of a year,” NAB chief economist Alan Oster said.

The Reserve Bank has not moved interest rates since August 2016, with governor Philip Lowe signalling that while the most likely next move will be a hike, that may not happen for some time.

Governor Lowe has become the longest-serving RBA boss to have not overseen a rate move.

“We still expect the economy to strengthen, leading to a declining unemployment rate,” Mr Oster said.

“This should eventually translate into stronger wages growth and give the RBA confidence that inflation will track back to its 2.5 per cent target. However, we acknowledge there is considerable uncertainty around the timing at which wages growth will strengthen, and the time of the RBA’s next move will remain highly data dependent.”

The move from NAB brings the bank closer to the pack, with many other economists seeing a “lower for longer” attitude prevailing within the Reserve Bank.

“The data reinforces the view that the RBA will raise rates in February 2019,” Commonwealth Bank economist Elias Haddad said.

“Employment conditions in Australia are good but wage inflation is still relatively subdued. That gives the RBA plenty of space to stay on the sidelines for the time being.”

Mr Haddad says the Reserve Bank will eagerly await the next round of official wages data, due on August 15.