1 May 2015
RBA set to cut rates next week - Capital Economics
FXStreet (Bali) - Paul Dales, Chief Australia & New Zealand Economist at Capital Economics, is expecting the RBA to cut rates next week, noting that the Central Bank will put its concerns about the real economy ahead of its housing worries.
Key Quotes
"The Reserve Bank of Australia (RBA) can’t have its cake and eat it. The only way to ensure that the Australian dollar weakens, which would support the real economy, is to reduce interest rates further, but this would boost the already hot housing market. We think the RBA will put its concerns about the real economy ahead of its housing worries and cut interest rates on Tuesday."
"Last week’s data releases neatly highlighted this dilemma. While the deterioration in the terms of trade in the first quarter further weakened the outlook for investment and employment growth, the growth of housing lending rose once again in March. The RBA must choose where its loyalties lie."
"The Bank will explain its policy decision in full in the Statement on Monetary Policy on Friday, which we expect will strike a dovish tone. Meanwhile, the rest of this week’s economic news may bring some signs of a softening in economic activity in Australia, with smaller gains in retail sales in March (data are due on Wednesday) and employment in April (Thursday). Similarly, we estimate that employment in New Zealand in the first quarter rose by less than in the fourth (Wednesday)."
Key Quotes
"The Reserve Bank of Australia (RBA) can’t have its cake and eat it. The only way to ensure that the Australian dollar weakens, which would support the real economy, is to reduce interest rates further, but this would boost the already hot housing market. We think the RBA will put its concerns about the real economy ahead of its housing worries and cut interest rates on Tuesday."
"Last week’s data releases neatly highlighted this dilemma. While the deterioration in the terms of trade in the first quarter further weakened the outlook for investment and employment growth, the growth of housing lending rose once again in March. The RBA must choose where its loyalties lie."
"The Bank will explain its policy decision in full in the Statement on Monetary Policy on Friday, which we expect will strike a dovish tone. Meanwhile, the rest of this week’s economic news may bring some signs of a softening in economic activity in Australia, with smaller gains in retail sales in March (data are due on Wednesday) and employment in April (Thursday). Similarly, we estimate that employment in New Zealand in the first quarter rose by less than in the fourth (Wednesday)."