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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, General

Last week experienced a fair amount of volatility in the wake of the RBA’s surprise growth downgrade on Tuesday and RBA Governor Lowe making clear in a speech Wednesday that the RBA’s latest monetary policy bias has now become balanced or neutral from slight tightening bias previously. Then on top of that we had the fallout following the release of the banking royal commission report and finally the White House watering down the prospects of a US-China trade deal….phew!

The upshot of all this saw financial markets move to further factor in the potential for an RBA rate cut (yes, rate cut), yields rallying with some parts of the yield curve trading to a three-year low, a weaker equity market (although bank stocks did post a gain last week) and a two cent fall in the Australian Dollar.

For me, monetary policy looks set to remain on hold for the foreseeable future.  The RBA won’t cut the cash rate while it sees economic growth running above trend and unemployment falling. However, if that view changes, then the natural response will be to cut the official cash rate. Nonetheless, there seems little chance of a rate hike in the foreseeable future given the balance of risks in the economy are to the downside and inflation remains below the RBA’s 2% to 3% target.  Therefore, financial markets will continue to price in the chance of a rate cut rather than a hike.

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Source: Rural Bank

 

Disclaimer: Whilst all care has been taken in compiling the information, the information should not be relied upon as substitute for professional advice where necessary. Rural Bank accepts no responsibility for the accuracy, completeness or timeliness of the information and disclaims all liability in relation to any loss or damage suffered by the use of or reliance upon any information contained herein or in any attachment or annexure hereto by any person. Rural Bank – A Division of Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL 237879