RBA to buck easing trend - RBS

Mansoor Mohi-uddin, Strategist at RBS, notes that the consensus strongly expects the Reserve Bank of Australia to cut its cash rate by 25bps from 1.75% to 1.50% today.

Key Quotes

“This follows the Bank of Japan’s decision to raise ETF purchases on Friday and likely Bank of England easing this week.

In contrast, we think the RBA will buck the trend for looser monetary policy and keep interest rates unchanged this month

• First, Q2’16 CPI showed underlying inflation picking up q/q after weak Q1’16 CPI prompted the RBA to cut rates in May.
• Second, underlying inflation remains below the RBA 2-3% target but in line with the central bank’s 1-2% forecasts for 2016.
• Third, Australia’s employment data suggests the labour market is continuing to improve, supporting higher wages in future.
• Last, the RBA’s July statement opened the door to more policy action but gave no clear easing bias.

We see the RBA waiting for more data including Q3’16 CPI before considering acting in Q4’16 after Gov. Stevens retires.”