4 May 2015
Australian inflation data providing scope for a May rate cut – BAML
FXStreet (Barcelona) - The Research Team at BofA-Merrill Lynch, sees last week’s inflation data signalling towards a rate cut possibility by the RBA in its May meeting.
Key Quotes
“Many of the arguments that would justify a May rate cut have been made before and would have justified a cut from the RBA in either March or April. Yet one significant piece of additional information in the RBA’s most recent communication was that the Bank was waiting for data on March quarter inflation.”
“The Bank’s April minutes noted that there were “…advantages in receiving more data, including on inflation, to assess whether or not the economy was on the previously forecast path and allowing more time for the economy to respond to the reduction in the cash rate earlier in the year”.”
“In our view, the inflation data released last week leave the RBA with scope to ease policy further. Indeed a 0.6%qoq rise in ‘core’ prices in the June quarter will be enough to keep this measure at 2¼%yoy.”
“Importantly, this is both in line with the RBA’s February forecast and is also entrenched in the bottom half of the target band. We expect that next week’s Statement on Monetary Policy (SoMP) will leave this forecast unchanged. And although the forecast for headline inflation of 1¼%yoy to June will be revised upwards by ¼pp due to the rebound in oil and subsequently petrol prices, this will likely have no impact on the policy outlook.”
Key Quotes
“Many of the arguments that would justify a May rate cut have been made before and would have justified a cut from the RBA in either March or April. Yet one significant piece of additional information in the RBA’s most recent communication was that the Bank was waiting for data on March quarter inflation.”
“The Bank’s April minutes noted that there were “…advantages in receiving more data, including on inflation, to assess whether or not the economy was on the previously forecast path and allowing more time for the economy to respond to the reduction in the cash rate earlier in the year”.”
“In our view, the inflation data released last week leave the RBA with scope to ease policy further. Indeed a 0.6%qoq rise in ‘core’ prices in the June quarter will be enough to keep this measure at 2¼%yoy.”
“Importantly, this is both in line with the RBA’s February forecast and is also entrenched in the bottom half of the target band. We expect that next week’s Statement on Monetary Policy (SoMP) will leave this forecast unchanged. And although the forecast for headline inflation of 1¼%yoy to June will be revised upwards by ¼pp due to the rebound in oil and subsequently petrol prices, this will likely have no impact on the policy outlook.”