RBA: Cash rate stays at 1.5% – TD Securities

Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities, notes that as widely expected, the RBA left the cash rate at 1.5% and as is custom for mid-qtr, the Bank peppered the statement with hints about the forecasts contained in Friday’s Statement on Monetary Policy (SoMP).

Key Quotes

“The Bank upgraded its outlook for growth and the labour market compared with August: “The central scenario is for GDP growth to average around 3 ½% over these two years (was 3 ¼%/y) before slowing in 2020”. The inflation profile was tweaked in August and appears little changed at “core inflation was 1 ¾%/y, in line with the Bank’s expectations. The CPI central scenario is for [headline]inflation to be 2 ¼%/y in 2019 and a bit higher in the following year”.”

“In Friday’s SoMP we expect the RBA to leave its core inflation profile at 1 ¾%/y for year end, flat at 2%/y for 2019 and 2.25%/y for 2020.”

“The AUD is flat at $US0.72 as market participants watch a horse race and await the outcome of the US mid-term elections. On any other day this rosier outlook would give the AUD a decent tailwind.”

“Consensus expects the cash rate to remain unchanged at 1.5% through to Q4 2019 (was Q2 in August) and implies no change to these statements for quite some time.”

“We plan to revisit our base case of +50bp in 2019 once we see the strength or otherwise in the Q3 Wage Price Index, released 14 November. We are household debt hawks but with lacklustre wages and inflation, a trigger for a rate hike remains frustratingly elusive.”