25 Oct 2013
Flash: The RBA faces a serious dilemma - Nomura
FXstreet.com (Barcelona) - The RBA is facing a complex dilemma to resolve, according to Charles St-Arnaud and Martin Whetton, Economist and Strategist at Nomura, respectively.
Key Quotes
"The tug-of-war between continued below trend growth coupled with rising unemployment and the concerns regarding increasing house prices fuelled by investors buying means that the RBA is likely to keep its policy rate on hold for the foreseeable future. However, we believe that the balance of risk is in favor of rate cuts and could imagine some situation that could allow the RBA to cut rate further."
"We believe rate could be cut if:1) the AUD reach parity, unless it is driven by stronger commodity prices and fuelled by expectations of better growth; and/or 2) the banking regulator (APRA) decides to put some new measures in place to contain house price appreciation and the credit growth to investors. This could take the form of the recent measures put in place in New Zealand."
"Such an action would dramatically alleviate the RBA’s concerns regarding the housing market and reduce the likelihood that lower rates would fuel another further sharp house prices. On that last point, we see this as an unlikely path for the RBA given their stated position on the efficacy of this policy."
Key Quotes
"The tug-of-war between continued below trend growth coupled with rising unemployment and the concerns regarding increasing house prices fuelled by investors buying means that the RBA is likely to keep its policy rate on hold for the foreseeable future. However, we believe that the balance of risk is in favor of rate cuts and could imagine some situation that could allow the RBA to cut rate further."
"We believe rate could be cut if:1) the AUD reach parity, unless it is driven by stronger commodity prices and fuelled by expectations of better growth; and/or 2) the banking regulator (APRA) decides to put some new measures in place to contain house price appreciation and the credit growth to investors. This could take the form of the recent measures put in place in New Zealand."
"Such an action would dramatically alleviate the RBA’s concerns regarding the housing market and reduce the likelihood that lower rates would fuel another further sharp house prices. On that last point, we see this as an unlikely path for the RBA given their stated position on the efficacy of this policy."