RBA: Cash rate likely to be kept at 1.5% throughout 2017 - Westpac

Sean Callow, Research Analyst at Westpac, suggests that after the Australia’s CPI data, markets price <10% chance of a RBA cut by year-end while the Westpac expects the cash rate to be kept at 1.5% throughout 2017.

Key Quotes

“The RBA cut the cash rate in Aug to 1.5%, its second easing of the year, with both following very low inflation readings.

Its Aug quarterly statement projected sustained low inflation that leaves the door open for yet more easing at some point. Core CPI is only seen returning to the bottom of the RBA’s 2-3% band by June 2017 and not rising from 2% (mid) even by Dec 2018.

The Oct statement used familiar language and retained a neutral bias. However, in the meeting minutes and RBA governor Lowe’s first speech, the Board emphasised the importance of Q3 CPI. While core inflation remains muted, Lowe should be relieved that headline inflation rose from 1.0% to 1.3% y/y, given his concern over inflation expectations.

The RBA has also noted the mixed employment picture so will be hoping for better data soon than we saw in Aug and Sep.”