More economists are paring back their expectation of an RBA hike this year. Macquarie Bank now no longer sees RBA hiking within 2018. it noted in a report that “the primary reason for pushing back our RBA call is that the Bank can err on the side of growing the economy faster for longer to erode spare capacity and have confidence that inflation is firmly moving back into the 2-3% target.” .
It referred to other advanced economies for the pattern of falling unemployment rates without wage growth. At this same time, “Australia’s unemployment rate remains at 5.5% and noticeably above ‘full employment’.” Also, “after two years of below-target inflation, and at least another one to come, there seems little danger of generating a meaningful pick-up in inflation expectations from keeping interest rates low for longer.”
Besides, “housing has settled”, and “investor activity in the housing market has subsided significantly and housing prices have broadly flattened out. There is “little danger” or “reacceleration in housing price or credit growth.” And therefore, “the source of much angst for the RBA — fast growth in housing prices in Sydney and Melbourne – has eased.”
NAB recently pushed back their RBA rate expectation too and predicted only one hike this year, not two. Westpac continued to expect no hike until 2019.
UK-EU planning instensive talk on Irish border, after completing the transition deal
UK Brexit Secretary David Davis is targeting to complete the legal text of the transition deal at the two-day summit from March 22. Most of the differences would likely be bridged on the following days. But the criteria of avoiding a hard Irish border remains a key showstopper. EU proposed a fall back option in its own draft published earlier this month. That is, should there be no compromisable solution, Norther Ireland would stay in the customs union along side Republic of Ireland. But UK Prime Minister Theresa May has instantly and bluntly rejected that idea. Intensive talk is now planned between March 26 and April 18 on the issue. There is some optimism on completing the transition agreement among UK officials. But businesses in UK would definite request a deal with full clarity. Any conditions in the deal attached to the outcome of Irish border issue would dissatisfy UK businesses and markets.