GDP growth to fall short of RBA’s lofty expectations

While we agree with the assessment of the financial markets that there is next to no chance of an interest rate hike when the Reserve Bank of Australia (RBA) meets on Tuesday 5^th September, we believe that the markets have got ahead of themselves by pricing in a rate rise for the second half of 2018. Indeed, we expect that another couple of years of below potential GDP growth will prevent any meaningful increase in price pressures for some time yet and, as a result, rates will remain on hold at 1.5% until well into 2019.