27 Feb 2015
Case for a March rate cut by the RBA – BAML
FXStreet (Barcelona) - The BofA-Merrill Lynch Team explains the possible reasons why the RBA may be compelled to cut rates again in March.
Key Quotes
“The case for further easing has been made by the weaker growth and inflation outlook presented in the Statement on Monetary Policy. Wages and business investment intentions data released this week only support this.”
“If economic growth is to be supported by policy over 2015, then rate cuts are appropriate. Also delaying any further cut may see the case have to be made again and this might be awkward in the lead up to the Federal budget in May.”
“The RBA minutes reveal that it is discussing what further steps can be taken by APRA to rein in property market activity and limit further imbalances. This underscores the RBA’s new-found confidence that APRA will be proactive in reducing the risk in this space, providing it a freer hand to ease policy without unduly fuelling house prices rises.”
“With inflation decelerating, unemployment data are increasingly important. The RBA’s forecast peak of 6.4% was reached in the January data. We look through one result in a volatile series, but the trend is undeniably upward with a risk of acceleration as resources investment and employment decline.”
“A$ depreciation has stopped and it has been well supported by cautious Fed commentary and moved back toward US$0.79. The RBA believe it is still above a fundamentally justified level of US$0.75.”
“We think in an environment where rates are less effective in stimulating activity the RBA needs the A$ to be lower, and the sooner the better. Indeed not cutting rates could see the A$ rally further so to a certain degree the exchange rate is driving monetary policy.”
Key Quotes
“The case for further easing has been made by the weaker growth and inflation outlook presented in the Statement on Monetary Policy. Wages and business investment intentions data released this week only support this.”
“If economic growth is to be supported by policy over 2015, then rate cuts are appropriate. Also delaying any further cut may see the case have to be made again and this might be awkward in the lead up to the Federal budget in May.”
“The RBA minutes reveal that it is discussing what further steps can be taken by APRA to rein in property market activity and limit further imbalances. This underscores the RBA’s new-found confidence that APRA will be proactive in reducing the risk in this space, providing it a freer hand to ease policy without unduly fuelling house prices rises.”
“With inflation decelerating, unemployment data are increasingly important. The RBA’s forecast peak of 6.4% was reached in the January data. We look through one result in a volatile series, but the trend is undeniably upward with a risk of acceleration as resources investment and employment decline.”
“A$ depreciation has stopped and it has been well supported by cautious Fed commentary and moved back toward US$0.79. The RBA believe it is still above a fundamentally justified level of US$0.75.”
“We think in an environment where rates are less effective in stimulating activity the RBA needs the A$ to be lower, and the sooner the better. Indeed not cutting rates could see the A$ rally further so to a certain degree the exchange rate is driving monetary policy.”