RBA is expected to keep the monetary stance unchanged in February – UOB

Lee Sue Ann, Economist at UOB Group, gives her opinion on the upcoming RBA event on February 4^th.

Key Quotes

“Australia’s headline inflation came in higher at 0.7% q/q for 4Q19, compared to 0.5% q/q in the previous three months, and marginally stronger than expectations of 0.6% q/q. On a yearly basis, inflation advanced 1.8% y/y, slightly higher than 1.7% y/y in the previous three months, and expectations of 1.7% y/y.”

“Of more importance to interest rates, the Reserve Bank of Australia (RBA)’s trimmed mean came in at 0.4% q/q and 1.6% y/y, similar to the readings in 3Q19. The RBA’s weighted median was up 0.4% q/q, similar to the revised 0.4% q/q reading in 3Q19. Compared to the same period one year ago, it was 1.3% y/y, also similar to the revised 1.3% y/y reading in 3Q19.”

“Data released earlier this month showed the Australian economy adding 28,900 new jobs in December, way above expectations for a 10,000 increase, following a very strong revised 38,500 gain in November. Even so, the employment situation was less impressive when we look at the details, as those job gains were entirely due to higher part-time employment of 29,200, whereas full-time employment actually fell by 300 positions.”

“The Reserve Bank of Australia (RBA)’s first meeting of the year takes place next week on 4 February. We think the combination of the latest inflation report as well as the stronger-than-expected labour market data, will be sufficient to keep the RBA on hold in February.”

“That said, the Australian economy faces headwinds, from the bushfires, drought, and downturn in residential construction activity, as well as the potential negative impact from the coronavirus. As such, although we have been leaning towards the view of the RBA being on hold this year (after their 75bps of monetary policy easing in 2019); we are not ruling out further policy stimulus, both monetary and fiscal.”