Some remarks on the implications of Reserve Bank of Australia Governor Lowe's speech yesterday
High Frequency Economics:
- say that expectations of a June rate cut will continue to gather pace
- unless there is a some data surprise
(positive data surprise that is)
back to HFE:
- says Lowe's comment on board to consider a rate cut in June is not a promise.
Capital Economics:
minutes & speech by Lowe "strongly suggest" an RBA cut at its meeting on 4th June.
More from CE:
Governor Lowe
- didn't seem too worried about the pick-up in the unemployment rate to 5.2% in April as he still described the labour market as "resilient".
- signalled that the RBA will lower rates next month. He argued that the Australian economy could sustain lower unemployment without generating inflationary pressures and noted that this is unlikely to happen under current policy settings. Instead, a combination of monetary and fiscal stimulus and structural incentives for firms to invest and hire would be needed. He argued that relying on just one of those measures had limitations and concluded by saying that "the Reserve Bank Board recognises that monetary policy has a role to play here". At the RBA meeting in two weeks' time, the RBA "will consider the case for lower interest rates".
CE's outlook:
- We think the RBA will cut interest rates to 1.25% in June and follow up with another 25bp cut in August.
