RBA maintains a clear easing bias - HSBC

FXStreet (Delhi) – Paul Bloxham, Chief Economist at HSBC, notes that the RBA left its cash rate on hold today at 2.00% while it also took into account that core inflation was lower than expected and introduced a clear easing bias, stating that ‘the outlook for inflation may afford scope for further easing of policy.’

Key Quotes

“With low underlying inflation, we expect another cut – but, given the RBA’s apparent patience, it now seems more likely in Q1 2016 (previously Q4 2015).”

“The RBA seems comfortable that there will be sufficient momentum in the local economy to keep inflation on target, despite the downside surprise in the Q3 numbers. The post meeting statement pointed to the recent lift in timely indicators, such as the NAB survey of business conditions, employment growth and credit.”

“The central bank’s view very much relies on the RBA’s own forecasts, given the last GDP print showed growth of 2.0% y-o-y, which is well below trend, and the last unemployment rate print was 6.2%, which is well above the full employment level.”

“Today’s brief comments from the central bank suggest they are likely to revise their inflation forecasts down, but leave the growth and unemployment rate forecasts unchanged.”

“Like the RBA, we also remain optimistic on growth, but given the low starting point for underlying inflation we think the RBA may struggle to keep inflation on target without extra stimulus. However, with the RBA choosing to be patient today, it now seems unlikely that they would cut this year.”

“The RBA’s next and final meeting for the year is on 1 December, which is before the highly uncertain Federal Reserve meeting on 15/16 December. We also get little new critical information on the Australian economy before then, with Q3 GDP due on 2 December and the next CPI print not until 27 January 2016. The next likely opportunity for a cut is therefore the 2 February meeting. We expect the RBA to cut to 1.75% in Q1 2016 (previously Q4 2015).”