From the folks over at eFX, a collection of views for the RBA today
Barclays: Narrowly Expects A Cut.
We narrowly expect the RBA to cut its cash rate by 25bp at its May meeting this week, after the weaker-than-expected Q1 inflation report. The simple average of three underlying price measures (weighted median, trimmed mean, and ex-volatile items) increased 0.8% q/q saar in 1Q16, the lowest reading since the series started in mid-2002, while the y/y comparison was also low at 1.5% y/y.
We think the extremely low underlying inflation print increases the risk that the RBA will ease significantly at the April meeting, as the bank will likely want to pre-emptively stem further weakening in inflation dynamics
BofA Merrill: Weak CPI To Trigger RBA Easing This Week
We expect the RBA will be forced to pull the trigger and ease rates at the meeting on 3 May with both headline and 'core' inflation falling well below the target band. To date the inflation outlook has not been driving monetary policy, with the Reserve Bank of Australia (RBA) focused on the outlook for growth and the labour market. But with inflation measures significantly disappointing the RBA's expectations, the question now turns back to the RBA's key mandate. Given the broad-based nature of the weakness, it seems challenging for the RBA that they could pass this off as transitory.
The RBA has been comfortable that underlying inflation would sit between the 2-3% target-band over the forecast horizon. As such, the RBA has been focused on the outlook for growth and the labour market. Now, with inflation falling well below target (and reaching the lowest annual rate in the history of the series), we think this presents a material case that the RBA will ease policy. This is especially true as there appears to be few downside risks to the RBA providing additional stimulus to the economy with a slower housing sector evident. We believe the RBA will go down this path.
BNPP: RBA On Hold But AUD Will Struggle
Our economists expect the RBA to downgrade projections at this week's meeting but to leave policy unchanged.
This is a close call, however, and markets are pricing in a 58% probability of a 25bp cut. Even if the RBA remains on hold we think the AUD will struggle. We believe positioning is already long and renewed AUD gains would likely increase the probability of a cut at future meetings.
Over the weekend, the official Chinese manufacturing PMI unexpected declined a tick to 50.1 from 50.2. We expect the Caixin PMI on Wednesday to hold below the 50 level.
Lastly, note that we continue to see downside risks to oil, with our commodity strategy team noting in a piece Friday that current levels are likely to short-circuit the supply cuts needed to allow for a longer-term recovery.
Citi: Citi now forecasts the RBA to cut rates by a 25bp at its May policy meeting.
"Economic growth doesn't argue for a rate cut next week. But the breadth of the price weakness in the Q1 CPI and signs that inflation expectations are shifting down suggest the period that inflation will undershoot the 2%-3% target could be more persistent than temporary.
These considerations provide justification for a 25bp easing next week. Even if the RBA passes in May it could ultimately cut as more data likely confirms inflation is staying below target," Citi argues.
"We believe the likelihood of lower inflation forecasts will prompt a response from the RBA. We suspect the CPI result would have been a shock to the RBA. Quarterly headline CPI was the weakest in seven years while quarterly and yearly underlying inflation were the weakest in the 16-year history of the seasonally adjusted underlying series, below the bottom of the 2%-3% target.
This means that even with our previous relatively upbeat forecasts, underlying CPI is now unlikely to return to even the bottom of the target band until Q1 2017. Critically, we view this delay as crossing the line from a temporary phenomenon that the RBA can ignore to a potential problem that policy needs to respond to," Citi adds.
Credit Agricole: A Case For RBA Easing But Lasting Impact On AUD Questionable
The AUD has been fairly resilient over the last few weeks. Strongly capped Fed rate expectations as well as further improving commodity price developments have been driving the latest development, irrespective of last week's lower Q1 inflation print making a bigger case of additional easing being considered as part of this week's monetary policy announcement.
However, unless external drivers such as rising Fed rate expectations or more muted commodity price developments weigh on sentiment for the AUD more considerable, it appears questionable that a more aggressive stance will have any lasting currency impact.
This is especially true as investors may assume that the central bank will have reached the lower bound in rates. However, it must still be noted that elevated speculative long positioning is keeping position squaring downside risks intact.
Westpac: RBA On Hold
Westpac expects rates to remain at 2.0% though markets and analysts are roughly divided 50/50 for a cut v steady hand. Market pricing for a 25bp cut jumped from around 10% to over 50% after the Q1 inflation report. Core CPI rose by just 1.5% y/y, down from 1.9% y/y in Q4 and well below the RBA's target of 2-3%. Missing the target however is not about moving outside the range near term but staying outside over the medium term.
While Westpac expects the Bank will drop their 2016 core inflation forecast to 1.75% from 2.5%, its 2017 forecast should be revised to 2.25% from 2.5% in Feb. If, however, the 'no policy change' forecast for 2017 was instead 1.75% then there would be little choice but to cut rates. It is crucial the Bank maintains its GDP growth forecast of 3.0% in 2017 - above trend of 2.75% and indicating some upward pressure on inflation from a tightening of the output gap including a strengthening labour market. There should also be some ongoing pass-through from the AUD. These forecasts will be released in Friday's Statement on Monetary Policy.
ANZ: On Balance We Think The RBA Will Sit Pat
While there are persuasive arguments on both sides, on balance we expect the RBA to leave rates unchanged. The Bank has consistently characterised low inflation as providing scope to ease policy to support demand if necessary.
At present, given strong business conditions and falling unemployment, demand does not look in need of further stimulus, even though the Bank may be missing its inflation target.
Morgan Stanley: On Hold But More Cuts Ahead.
While we remain structurally bearish AUD and our economists expect 50bps of cuts this year by the RBA, we expect it to pass at easing in May given the release of the Federal Budget that evening and evidence that China's stimulus is temporarily supporting Australia's economy. We expect a decelerating China, falling iron ore prices and a slowing housing market to eventually weight on AUD and cause more easing from the RBA.
