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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

Regardless of whether the Reserve Bank of Australia (RBA) cuts interest rates from the current rate of 2.25% to 2.00% at the April or May policy meeting (I slightly favour a move at the meeting on Tuesday 7th April), the important point is that this is unlikely to be the last rate cut for this cycle.

The decision is a close call and I wouldn’t be surprised with either outcome. However, given that the RBA appears to have decided that there is a clear case for cutting rates again, I see little point in delaying until May.

Will the RBA cut in April or May?

Reasons to cut in April

Reasons to wait until May

Prevent the Australian Dollar from rising.

Mar/Q CPI & March employment data release in April

Prevent market interest rate expectations and bond yields from rebounding.

More time to see if the outlook for the non-mining investment has improved.

Bigger impact on markets.

RBA Statement on Monetary Policy released in May.

If the case to cut is compelling – why wait?

Waiting may put less fuel on the already hot housing market.

 

Market pricing and the latest Bloomberg’s economist survey both suggest the Reserve Bank is set to cut the official cash rate to 2.0% at either of the next two meetings. The market is attaching 72% probability of policy action this week, with a full cut (100%) factored in by May - and every research house but one (Macquarie Research) is calling for the cut. Beyond this however the futures market pricing is a little aggressive, with the cash rate expected to reach a low of 1.60% in 10 months’ time, that’s a total of three cuts from the rate today!

Source: Rural Bank

 

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