4 Dec 2014
Hurdle for the RBA to cut rate remains high - Nomura
FXStreet (Bali) - Charles St-Arnaud, Economist at Nomura, the hurdle for the RBA to cut its policy rate remains high.
Key Quotes
"While we recognise that risks on the policy rate are on the downside, we continue to believe that the hurdle for the RBA to cut its policy rate remains high, because of the financial stability concerns linked to the housing market. We believe that certain conditions will need to be met before the RBA considers cutting its policy rate:"
"1. Macroprudential measures to reduce investors‟ participation in the housing market will need to be put in place. There will also need to be some signs that these measures are having the intended impact on the housing market. "
"2. Additional deterioration of the labour market with an increase in the unemployment rate. The RBA has expected unemployment to stabilise around current levels as "some forward indicators of employment have been firming this year". We believe that a further drift higher, to above 6.5%, would be needed to push the RBA into action."
"3. Further moderation in inflationary pressures. Inflation remains consistent with the RBA‟s target and the weaker AUD could help push it higher in Q4; domestic inflationary pressures, especially non-tradable and service price inflation are showing signs of moderation probably as a result of excess capacity. Moreover, weak income growth is also pointing to weak inflationary pressures. As such, the next CPI release on 28 January will be particularly important."
"As we have shown previously, we believe the introduction of macroprudential measures alone are unlikely to be enough to push the RBA into action and that it requires further signs that growth is moderating and inflationary pressures are moderating. Nevertheless, the tone of the statement following the February meeting will likely be slightly more dovish. We have a bearish view on AUD, as more depreciation is needed for the currency to converge to fundamentals and because of further USD strength."
"However, with growth showing signs of weakness, risks are on the downside. Moreover, any rate cut by the RBA will likely moderate inflows from Japanese investors and as the financial market is pricing in about a 20bp cut, this could already be affecting those flows."
Key Quotes
"While we recognise that risks on the policy rate are on the downside, we continue to believe that the hurdle for the RBA to cut its policy rate remains high, because of the financial stability concerns linked to the housing market. We believe that certain conditions will need to be met before the RBA considers cutting its policy rate:"
"1. Macroprudential measures to reduce investors‟ participation in the housing market will need to be put in place. There will also need to be some signs that these measures are having the intended impact on the housing market. "
"2. Additional deterioration of the labour market with an increase in the unemployment rate. The RBA has expected unemployment to stabilise around current levels as "some forward indicators of employment have been firming this year". We believe that a further drift higher, to above 6.5%, would be needed to push the RBA into action."
"3. Further moderation in inflationary pressures. Inflation remains consistent with the RBA‟s target and the weaker AUD could help push it higher in Q4; domestic inflationary pressures, especially non-tradable and service price inflation are showing signs of moderation probably as a result of excess capacity. Moreover, weak income growth is also pointing to weak inflationary pressures. As such, the next CPI release on 28 January will be particularly important."
"As we have shown previously, we believe the introduction of macroprudential measures alone are unlikely to be enough to push the RBA into action and that it requires further signs that growth is moderating and inflationary pressures are moderating. Nevertheless, the tone of the statement following the February meeting will likely be slightly more dovish. We have a bearish view on AUD, as more depreciation is needed for the currency to converge to fundamentals and because of further USD strength."
"However, with growth showing signs of weakness, risks are on the downside. Moreover, any rate cut by the RBA will likely moderate inflows from Japanese investors and as the financial market is pricing in about a 20bp cut, this could already be affecting those flows."