Bill Evans says the RBA's view on dwelling pipeline was disappointing
The RBA's recent discussion around housing was "quite understated," according to the Westpac chief economist Bill Evans.
He noted the latest minutes indicated “the process of adjustment in the housing market had continued.”
Evans said there was some recognition by the RBA board members of the spill-over of housing prices to activity, “some part of the slowdown in retail and motor vehicle spending in NSW was likely to have been related to declines in housing prices”.
Evans also said he was "disappointed" to note that the RBA was persisting with a view that “the pipeline of work to be done remained large and was expected to support dwelling investment through 2019”.
Evans said that dwelling investment peaked in mid-2018 with around a six per cent fall in the second half of 2018.
He supports the RBA’s expectation for a “marked slowing in dwelling investment”, but expects that this has come earlier than their expectation of “in 1-2 years’ time”.
Evans noted the RBA has raised the importance of data releases over the next few months and left open the possibility to cut rates should those releases disappoint.
"Certainly, the December quarter national accounts would have fitted into that category, although the emphasis remains on the labour market data.
"Westpac does expect that consistent with the slowdown in spending and deterioration in both business and consumer confidence, we will see emerging evidence of a slowing labour market over the course of the next six months.
"Westpac’s timetable for policy action remains a 25bps cut in August to be followed by a second 25bps cut in November.
"These dates will give the RBA appropriate scope to explain their decisions in the context of weaker growth, employment and inflation forecasts in an orderly fashion, rather than be seen to overreact to any particular data report," Evans said.