Bill Evans Chief Economist at Westpac Comments on Interest Rates.
Bill Evans has been on the money lately when forecasting interest rates. We have set out below the summary of his most recent report.
He is tipping an interest rate drop of .25% in February 2012 but says it will not be a surprise if that interest rate cut is brought forward to December 2011.
Bill is commenting for Westpac on the minutes of the Reserve Bank -
This commentary in the Minutes clearly leaves the door open for further rate cuts. Westpac has been expecting a further 75bps in this cycle with the next move timed for February. Markets give a 100% probability of a cut by December 6. One of our key reasons for expecting a delay to the next move has been around the Bank’s concern to confirm the sharp slowdown in underlying inflation with another print. The minutes indicate that due to the weakness in the domestic economy and the evidence from their liaison, the Bank is convinced that inflation will remain low.
With financial conditions and policy settings not yet being described as neutral, inflation forecast to remain within the target and GDP growing at trend, the scope to further ease policy is clear. Given the huge emphasis which the Bank has placed on downside risks to the global economy when justifying the cut in November, December’s decision will also hinge on those global developments. We remain comfortable with our original view but can easily see circumstances
which would bring the decision to cut rates by 0.25% forward from February to December.
As the financial developments in Europe evolve over the next few weeks, this picture will become quite clear. The European situation is likely to be much more important than fiscal policy.
Bill Evans, Chief Economist
