Bill Evans, analyst at Westpac, notes that the markets are pricing in a 50/50 chance of a rate cut from the RBA next week, following the recent Inflation Report, but Westpac still expect that the first move will be in August rather than May.
Key Quotes
“We anticipate that the RBA Board will adopt a clear easing bias at the May meeting, prior to cutting rates by 25bps in August and in November.”
“That view was predicated on the Reserve Bank lowering its growth forecasts at the meeting, to trend in 2019 (2.75% from 3%) and below trend (2.5%) in 2020.”
“At trend growth” in 2019 is not sufficient to trigger a rate cut immediately but we expected that by August, when the next set of growth revisions would be made, the growth forecasts would need to be lowered further (to 2.5% in 2019 and 2.25% in 2020).”
“With underlying inflation persistently below the bottom of the 2-3% target band; growth forecast below trend and in conjunction with an existing explicit easing bias the case for a rate cut would be indisputable.”
“We expect that the Board will proceed along the lines we forecast in February with rates being on hold at the May meeting but adopting a clear easing bias.”
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