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Chidu Narayanan, economist at Standard Chartered, suggests that October RBA meeting is a close call and they expect it to stay put next week, but cut in November, December.

Key Quotes

“We expect the Reserve Bank of Australia (RBA) to keep the policy rate unchanged when it meets on 1 October. This is a non-consensus call; 19 of 25 economists surveyed by Bloomberg expect a 25bps rate cut, while OIS markets are pricing in an 80% chance of a 25bps cut. However, we expect two 25bps rate cuts from the RBA in Q4 this year, more than the OIS market and forecasters expect.”

“We expect the rate cuts to be delayed and only come in November and December. The RBA has been a reluctant rate cutter. Recent communication has only been marginally dovish; we believe the RBA is not as certain of cutting rates as it was in June, especially ahead of key domestic data and the October US-China trade talks.”

“We believe the central bank will wait until November, enabling it to assess if recent labour-market deterioration is a trend, inflation remains benign, and to assess the global growth outlook following US-China talks. In addition, the RBA will also have the quarterly statement on monetary policy to explain its rate cut and provide forward guidance.”

“We expect the RBA to ease more aggressively than both markets and forecasters expect – we see 50bps of easing by the end of the year. We expect the unemployment rate to rise above 5.5% in the next few months, causing growth to drop to a multi-decade low in 2019.”