6 Jul 2015
RBA policy preview: Limited chances of further easing – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, notes that the Australian data since the 2 June policy meeting has been reasonably firm, limiting the chances of further policy easing this year.
Key Quotes
“After having cut the cash rate to 2% on 5 May, the Reserve Bank of Australia has been somewhat cautious on the outlook for the economy with the ongoing strength of the currency a key issue along with the weakness in business capital expenditure. That said, since the 2 June meeting when RBA policy was left unchanged, the data flow hasn’t been too bad. 1Q15 GDP came in at 0.9% QoQ versus expectations of 0.7% while a strong labour report resulted in the unemployment rate dropping to 6%, the lowest rate for twelve months. As such, action at Tuesday’s RBA meeting seems unlikely despite inflation remaining below target.”
“Fiscal consolidation remains a headwind while the ongoing weakness in commodity prices and subdued Chinese demand will likely mean that a pick-up in investment remains some way off.”
“However, the housing market is buoyant and credit growth is firm so there is still a fairly high hurdle for further policy easing. August will be the next opportunity when new RBA forecasts are released.”
“A minority of analysts expect a 25bp rate cut then, but we agree with the general consensus that the lagged effects of RBA policy loosening, the weakening AUD trend and an improving global growth backdrop will prompt the RBA to predict inflation to be broadly in line with target in coming years.”
Key Quotes
“After having cut the cash rate to 2% on 5 May, the Reserve Bank of Australia has been somewhat cautious on the outlook for the economy with the ongoing strength of the currency a key issue along with the weakness in business capital expenditure. That said, since the 2 June meeting when RBA policy was left unchanged, the data flow hasn’t been too bad. 1Q15 GDP came in at 0.9% QoQ versus expectations of 0.7% while a strong labour report resulted in the unemployment rate dropping to 6%, the lowest rate for twelve months. As such, action at Tuesday’s RBA meeting seems unlikely despite inflation remaining below target.”
“Fiscal consolidation remains a headwind while the ongoing weakness in commodity prices and subdued Chinese demand will likely mean that a pick-up in investment remains some way off.”
“However, the housing market is buoyant and credit growth is firm so there is still a fairly high hurdle for further policy easing. August will be the next opportunity when new RBA forecasts are released.”
“A minority of analysts expect a 25bp rate cut then, but we agree with the general consensus that the lagged effects of RBA policy loosening, the weakening AUD trend and an improving global growth backdrop will prompt the RBA to predict inflation to be broadly in line with target in coming years.”