The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Tuesday, July 17, 2012

Seven economists drop interest rate cut for August RBA meeting (table)

In June I provided a quick overview of Bloomberg's survey of economist interest rate forecasts through to end 2013. Based on that data, the only economists that called a July cut were Credit Suisse and Westpac's Bill Evans. As we now know, the RBA decided to keep the cash rate steady at 3.5%.

We are now moving into August and it is timely to revisit the Bloomberg survey. It is well known that economists shift around their long-term forecasts all the time depending on the data flows. That is entirely reasonable. It is less well understood that even ultra short-term forecasts can change quite materially (again, this is reasonable given how quickly global economic dynamics move). In the table below I have summarised the changes to forecasts made for the August cash rate from estimates supplied a month or so ago...

We can see that seven economists have dropped an interest rate cut from their August cash rate projection. These include ANZ, BNP, Citi, Market Economics (Stephen Koukoulas), NAB, RBC, and Westpac. Within this cohort, Westpac were expecting back-to-back cuts in July and August, and have shifted to just one cut in August. Stephen Koukoulas was forecasting a 50 basis point cut in August, and has pulled this back to 25 basis points.

There are also some interesting variances in the longer-term estimates. AMP's Shane Oliver has hiked his December 2013 cash rate a chunky 75 basis points from 3.25% to 4.0%. Likewise, the very experienced Bill Evans has now dropped his high-profile 2.75% cash rate call for end December, and nudged it back up to 3.0%. Moving in the opposite direction, Moody's have reduced their end 2013 expectation 50 basis points from 4.0% to 3.5%. And BNP have shaved 25 basis points of their guess to 3.75%.