Comments from a few economists on what to expect from the Reserve Bank of Australia on February 3.
Standard Chartered
- Expect the RBA to revert to a dovish stance on Tuesday “explicitly acknowledging the possibility of further rate cuts”
- But maintain view no further cut in the cash rate is likely
- “The RBA is likely to rely on further currency depreciation to deliver additional easing. We expect it to maintain its view that the Australian dollar (AUD) is overvalued, despite recent depreciation, particularly given the drop in commodity prices”
AMP Capital’s economist Shane Oliver:
- Says RBA will cut the cash rate next week
- “It doesn’t matter a lot whether it’s in February or March, the key is that interest rates need to come down”
- Says 50% chance the RBA will cut again, likely in May
Citi
- Forecast no further cash rate cuts
- But, says the RBA may shift ty an easing bias in their statement
- Acknowledge that there is a risk the RBA “has changed its thinking about maintaining interest rates at levels well above the vast majority of central banks”
St George:
- No change in forecast of RBA on hold in 2015
- But … next week will be a close call
- “… if the RBA does cut, it is unlikely to be a one-cut wonder; another rate cut could follow later this year”
Deutsche Bank:
- Says the RBA next week “un-forecastable”
- He cannot conclude that the RBA has changed its mind with certainty
- Retaining his view that the RBA stays on hold
- Concedes the meeting is “live” and the RBA could ease
- Current forecast is for first cut in Q2 and a second later
ANZ
- Reiterate their previous view that the RBA will be on hold
- But will change the guidance
- Will drop ‘period of stability’, will instead say something like ‘appropriate for the time being’ or ‘scope for easing’.
- Says two cash rate cuts, March and May
- “In line with a new easing bias we expect the tone of the statement to shift slightly, focusing on easing mortgage demand and lower inflation as a catalyst to reduce rates a little further”
- A hawkish outcome would be for the board to maintain the status quo, not only keeping rates on hold but sticking with the ‘period of stability’ guidance … “This looks like the biggest shock to market expectations with the probability of a rate cut next week priced at 65 per cent and a full 25 basis points cut priced for March. This is not a trivial risk, many tier one economists and others think the RBA will do nothing on rates this year”
- The dovish outcome is a cut, an easing bias and a statement that indicates further rate cuts are likely. The market would likely price in a sub 2 per cent cash rate for some time in 2015
- Sees a 60 per cent chance for its central case and the hawkish and dovish risks at 20 per cent each
- “A hawkish outcome (maintaining the status quo) is the most significant risk for the currency. Indeed, the very prospect of rate cuts at any stage in 2015 will come into question if the RBA doesn’t move and keeps ‘period of stability’. This will be strongly positive for the currency given the quantum of cuts priced in at the moment.”
HSBC’s Says again the RBA will leave the cash rate on hold next week
- But a “cut is certainly a possibility”, citing recent cuts by other global central banks
- “The recent upside surprise to the Q4 2014 underlying inflation measures (0.7% q/q; market had 0.5%) should tell the RBA that demand has been holding up fairly well. At the same time though, the recent fall in oil prices is likely to deliver even lower inflation in future, which could leave the RBA with scope to consider cutting rates”
- “In deciding whether to cut further, the RBA also needs to weigh the benefits of lower rates against the potential costs of over-inflating the housing market. We think this trade-off will see the RBA sit still with its 2.50% cash rate, rather than cut, but it is close.”
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