Is ‘boring’ Bill Evans right on interest rates again?

With Sydney property prices slowing, the case for rate hikes is fading and one economist is once again looking prescient.

Westpac chief economist Bill Evans. (Pic Glenn Barnes)

Making a forecast that nothing will happen is the sort of thing that ensures you do not get attention. It’s a boring call. Westpac’s chief economist Bill Evans has not moved with the pack on interest rates all year. As the major banks brought forward their calls on interest rate hikes, Evans stuck to a simple line … rates will not change this year or even next year.

Now with house prices slowing in Sydney and Melbourne the case for moving rates higher is fading by the day.

Not surprisingly, just as fast as some economist have been calling for rate increases, this latest news on house prices has some economists calling for rate cuts. Credit Suisse suggested today that the Reserve Bank will need to announce a rate reduction soon to counter the downturn in housing demand from Chinese investors.

Meanwhile old school Bill Evans — who makes no attempt to entertain or provoke in his public comments — reviews his numbers inside Westpac and with a solid dose of pragmatism leaves his figures alone.

Here’s his take: “Australia has no reason to raise interest rates. Even though the market is now predicting a rate hike next year, it’s been our view for a couple of years that rates are going to remain on hold for 2017 and 2018”.

And the thing is, it would be risky indeed to ignore Evans because he has a long track record of getting it right whenever he breaks with his colleagues in rival banks and makes what looks like an unlikely forecast.

Back in 2011 — after a long 12 months when Evans and his solitary predictions of looming rate cuts got little airplay — the RBA entered an extended program of rate cutting.

Not long afterwards, Evans defied not just official government forecasts — but forecasts from the mining giants themselves, by suggesting metal prices would bounce in the months ahead, that forecast was right too.

Speaking to The Australian today Evans suggested he found it hard to recall those past forecasts or indeed to keep up to date with rival bank forecasts: “I concentrate on my own numbers,” he explained.

One further dimension of the current Evans call on interest rates is that, if he is right, our dollar will fall from the current 77 cents to nearer 70 cents.

Evans recently told investors: “I think by the second half of next year US interest rates will be nearly half a per cent above our own and we’ve really only had a couple of times in the last forty years when that’s been the case and on each of those occasions, not surprisingly, the Aussie dollar has had to take some of the downward pressure.”