Macquarie says rates will be on hold until 2019

The Reserve Bank of Australia is tipped to sit on the sidelines for longer keeping interest rates steady say analysts at Macquarie.

Macquarie's economics team of Justin Fabo and Ric Deverell say they now expect the RBA to remain on hold until early 2019, Fairfax Media reported today.

While the economy is improving, the unemployment rate remains too high, and wages and price inflation too low for the 25 basis points of rate hikes pencilled in for August and November this year, the economists said.

"Monetary policy should be set on the path of least regret. That path, in our view, is now to err on the side of supporting growth for longer to gain more confidence that inflation will once again spend more time in the 2 per cent to 3 per cent target than not."

Macquarie noted that risks to the housing market have diminished with "the source of much angst for the Bank – fast growth in housing prices in Sydney and Melbourne" seen easing.

Since August 2017 Macquarie analysts had 25bp hikes pencilled in for August and November this year.

Markets are pricing a non-negligible 45% chance of a rate hike by end 2018, "which looks about right in our view," says Fabo.