Westpac’s Evans Drops RBA Rate-Cut Call on Better Employment

Bill Evans, Westpac Banking Corp.’s chief economist and the first to call the Reserve Bank of Australia’s latest easing cycle, has dropped his prediction of further interest-rate cuts as the labor market strengthens.

Public comments from central bank officials indicated a “high hurdle” for further reductions in borrowing costs and the better outlook for jobs and consumers had made it “just too high,” Evans wrote in a research note today. He forecast the first rate increase will be in the third quarter of 2015.

The Australian dollar rose after the release of the report as one of the nation’s foremost market economists acknowledged the bottom of the central bank’s easing cycle. The RBA cut its benchmark rate by 2.25 percentage points from November 2011 through August 2013 as it sought to rebalance the economy away from mining investment and toward domestic demand.

“We have been impressed by the momentum in household spending,” Evans said in the report. The “revised picture of the labor market now seems more consistent with recent lead indicators of employment intentions in the business surveys, which have recently lifted,” he said.

The Australian dollar rose to 90.55 U.S. cents at 4:45 p.m. in Sydney. Australia’s 10-year government bond yield climbed 1 basis point to 4.05 percent, while the three-year yield was up 3 basis points at 2.91 percent.

Evans sees the Australian dollar declining to 87 U.S. cents by March 2015, up from the expected 85 cents when rate cuts were forecast.

Jobs Surge

Australian employers boosted full-time payrolls in February by 80,500, the most in more than 22 years, and overall employment climbed 47,300, government data March 13 showed. The nation’s economy expanded faster than forecast last quarter on rising household spending and lower savings, according to a separate March 5 report.

Bank of America Merrill Lynch’s Saul Eslake is still predicting a rate cut later in the year.

“We remain of the view, notwithstanding some recent data which challenges it, that growth will remain below trend and unemployment will continue to rise for longer than the RBA now does,” Eslake wrote in an e-mail. “We find it hard to believe that the RBA would do nothing in the face of unemployment continuing to rise, as we think it will, throughout this year and possibly into 2015 as well.”

National Australia Bank Ltd.’s Alan Oster also sees another reduction, according to a Bloomberg survey on Feb. 28.

RBA Governor Glenn Stevens told lawmakers this month that he’s not sure how long a flagged period of rate stability will last and doesn’t see the need to further loosen “very accommodative” policy at the moment.

“Dwelling approvals have lifted markedly,” Evans said. “Growth in housing finance has been very strong.”

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