Janu Chan

What to expect from the new RBA Gov

What four leading female economists expect to see from the new RBA governor on rates and economic growth.

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There’s only a small number of women in top economic roles in Australia’s financial markets but that’s still a lot more than there was a decade ago and today, their views carry more than some serious weight.

Financy interviewed four of these women on rates and economic growth ahead of the Reserve Bank of Australia’s October meeting on rates today.

That meeting will be Governor Phillip Lowe’s first in the role, since Glenn Stevens stepped down.

While all of the economists said rates were likely to remain on hold at 1.5 per cent, bets are increasing that the RBA will be forced to cut again, possibly to 1 per cent to further stimulate the economy from a so-so sluggish course of growth.

No significant changes expected

Su-Lin Ong, Chief Economist and Head of Australian Research, RBC Capital Markets

The October meeting is obviously Governor Lowe’s first, we are looking for no change at a 1.5 per cent and only in the second quarter of 2017 do we see a further cut to 1.25 per cent. We think that is where rates will bottom.

Inflation remains an issue in the longer term

Janu Chan, Senior Economist, St George Bank

We Think the RBA will remain on hold. They have just cut in May and August and the commentary they have been providing suggests they can wait and see for a bit longer and they wouldn’t want to go ahead of the next round of key inflation data.

Rates likely to remain on hold for some time

Nicki Hutley, Chief Economist, Urbis

I expect the cash rate to remain on hold in October and in 2017, the most likely scenario is that rates will still be unchanged because despite low inflation and an unchanged RBA inflation target, there is still good momentum in the economy.

It’s hard to paint a scenario with higher rates

Jo Masters, Senior Economist, ANZ Bank

We’ve got rates staying at 1.5 for this year and we don’t have any expectations for change into 2017.

The risks are clearly to the downside. Even the new RBA governor Phillip Lowe last week talked about scenarios where rates could go lower or stay at current levels, and I think that is reasonable given the inflation profile which is similar to ours, so it’s hard to paint a scenario where you get higher rates.

What are likely to be the main drivers of growth?

Su-Lin Ong: There’s no doubt the housing construction cycle has proved stronger and longer than we thought and will be a contributor to activity over the next six months.

That in part reflects the shift towards higher multi-story construction, which has a longer build time. This is a historically strong cycle.

I think the bigger question into 2017 is what happens when housing construction peaks and we see that happening in the first 6 months of 2017.

With that comes additional supply and weaker house prices and that has implications for everything from confidence to household expenditure.

What we are hoping for is that when housing peaks that other areas of the economy around services side of the economy takes over. There are encouraging signs around cap ex.

Tourism and education will benefit from a lower dollar

Janu Chan: Housing construction will be one of the key drivers in the near term but that is coming off a peak now.

Elsewhere other areas looking promising include services, anything that benefits form low Aussie dollar like tourism and education.

Sectors, which have got some good long-term fundaments such as healthcare and childcare, will also do well.

A lower dollar will be important

Nicki Hutley: The services sector, and that’s mostly a rates and Australian dollar story which is helping to drive education, tourism and business services.

So those things are really important for Australian economic health as mining investment gets back to more normal levels.

The Australian economy is doing okay

Jo Masters: The housing cycle has been important and the other one is still the Aussie dollar, which has rallied a bit recently, but obviously a lower Aussie dollar helps the economy adjust from mining-led growth to non-mining.

I think the economy is doing okay. GDP numbers are better than expected with GDP at 3.3 per cent, which is good when you look globally.

The Australian economy is looking more flexible and nimble than many might have expected.

So some parts of the economy have picked up. Household consumption has picked up; the services side of the economy has been strong. The housing cycle has also been supportive for growth.

This is an excerpt of the original feature article provided to our friends at Livewire Markets.

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