Another RBA cut depends on data – UOB
|Economist at UOB Group Lee Sue Ann assessed the recent decision by the RBA to leave the OCR unchanged at 0.75%.
Key Quotes
“As widely expected, the Reserve Bank of Australia (RBA) kept its official cash rate (OCR) at the historic-low of 0.75% at its final meeting for the year. [The] decision comes on the eve of what is likely to be a lackluster set of GDP figures for 3Q19, even as annual growth is expected to rise to 1.7% y/y from a decade-low of 1.4% y/y in 2Q19. The RBA had made three quarter-point reductions to the OCR this year in June, July and October”.
“For now, it is indeed clear that the RBA appears to be in a holding pattern as it waits to gauge the effects of the rate cuts so far this year. Last week (26 November), RBA Governor Philip Lowe’s gave markets more clarity on the implications for Australian monetary policy during his speech… He spoke about pausing rate cuts for now as recent rate cuts have a surprising effect of signalling a weak economy and dampening consumer confidence. Lowe also spoke about the terminal rate being 0.25% instead of the widely expected 0.50% (which suggests the possibility of two more rate cuts) and QE would only be considered when the OCR is at 0.25%. He balanced that dovish view by downplaying the need for QE in the near future”.
“Our growth forecasts of 1.8% this year and 2.4% in 2020 are lower than the RBA’s, which expects growth to return to around 2.75% to 3.00% going forward.”
“As such, we are maintaining our OCR call of 0.75%, for now, but the case for a rate cut at the next RBA meeting on 4 February 2020, will depend on housing, construction and economic data released over the next two months. At the same time, the Government does not seem to be inclined to provide material fiscal stimulus in the near term, which increases the need for the RBA to ease further, should the labour market deteriorate and consumer spending weakens further.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.