RBA: Markets price only a small risk of a cut by June 2017 - Westpac

Sean Callow, Research Analyst at Westpac, notes that the RBA held the cash rate at 1.5% in February and maintained a neutral outlook in its statement which was fully expected.

Key Quotes

“Perhaps most notable in the statement – later reinforced in the quarterly SoMP – was a more upbeat view of the global economy: “The improvement in the global economy has contributed to higher commodity prices, which are providing a boost to Australia's national income.” GDP growth is expected to rebound after the weak Q3 reading.”

“Westpac expects that the labour market – rather than inflation - will be key to whether there is a rate cut in 2017. Our base case is that the cash rate remains at 1.5% throughout both 2017 and 2018. We see risks to this view skewed more to a rate cut than to a hike, as growth in 2018 could disappoint.”

“Markets price only a small risk (about 10-15%) of a cut by June 2017 and then toy with the idea of a rate rise by year-end (also 10-15% chance).”