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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities

The highlight last week was the clear shift by the Reserve Bank of Australia (RBA) in moving to a neutral bias after their monthly Board meeting. The two big changes in the statement were the removal of reference to an “uncomfortably high” Australian dollar and the now neutral monetary policy stance, with their statement concluding that “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”.

The key message in last Friday’s Statement on Monetary Policy was not the small upward revisions to the economic growth forecasts by the RBA, but rather that it now felt more confident about the prospects for a gradual return to trend growth which it has been forecasting for some time. This suggests that the RBA is likely to keep cash rates on hold over the course of this year.

The gentle shift in language effectively gives the RBA time to pre-position the market for an end to the rate cutting cycle. Although the market will take this as a cue for pricing-in the next hike. Financial markets have moved rate expectations accordingly and unwound any prospect of rate cuts or rises for several months (refer chart below).


Whilst the market is likely to get the direction right, I suspect their timing may be too aggressive.



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