Bill Evans, analyst at Westpac, explains that the recently released RBA minutes clearly indicate that they are willing to cut the cash rate and have set out the conditions that need to be fulfilled for it to occur.
“We are encouraged by this new detail, and continue to believe the RBA will cut the cash rate in August and November this year.”
“The Board also notes that “members agreed that there was not a strong case for a near-term adjustment in monetary policy”. We would interpret the “near-term” concept as referring to the next Board meeting in May. We do not believe that statement excludes the possibility of our target timing of August for the first rate cut.”
“The Board has made a clear case for the benefits of lower interest rates, discounting arguments to suggest that it sees little benefit from lowering rates given the very low starting point. The Board also lays out clearly the conditions for lowering those rates around inflation and the labour market. It appears that it has resolved the uncertainty around the conflicting signals between growth and employment by favouring the labour market. That is disappointing for us, given that the previous policy responses have been linked to growth forecasts, although we expect that persistently slow growth should begin weigh on the labour market.”
“While prospects for a policy response in May have disappeared, there is still ample time and data releases to justify our timing that there will be cash rate cuts in August and November.”
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