ANZ analysts are seeing the RBA’s Governor speech at Tuesday’s RBA Board dinner as effectively a call to action for monetary policy and now expect it to cut in August and November.

Key Quotes

“From that point, the outlook for policy becomes more uncertain. For one thing it will depend on how the data responds to the RBA rate cuts and the sizeable tax stimulus in the second half of this year. Past experience suggests lower interest rates stimulate the housing market, potentially turning price declines into price increases. This would pose an enormous challenge for the RBA, which does not want further growth in household indebtedness.”

“The Bank may therefore turn to other policy tools, such as forward guidance to stimulate the growth outlook. We see this as having an important flattening impact on forward interest rate expectations. These have already come down a lot.”

“At this point in time, given tighter credit conditions have been a major influence on the housing market, lower interest rates will have a less pronounced housing market reaction than in the past. As an indicator, we will be watching auction clearance rates.”

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