- December 3, 2012
- Posted by: admin
- Category: Enconomy, Finance News, Financial goals, House prices, Inflation, Interest rate, Wealth
While many economists believe the Reserve Bank of Australia (RBA) will cut the official cash rate again when the Board meets tomorrow, it is not a guaranteed event.
With new economic data showing weakening investment intentions and only modest signs that monetary policy is driving rebalancing of growth, a 25 basis point rate cut next week is likely.
Last month the RBA held rates steady; markets priced the chances of a cut at 50:50.
It was a close call and we knew it. The post-meeting RBA statement suggested they held steady because Q3 CPI was a slight upside surprise and global conditions had stabilised.
Three days later, the 69-page official statement revealed downward revisions to the RBA’s local GDP forecasts – from 2.50-3.50 per cent to 2.25-3.25 per cent for 2013.
Their CPI forecasts were unchanged, with the CPI still expected to be in the target band. Other things being equal, lower than expected growth should motivate further rate cuts. But the official statement also suggested a key concern was that wages growth was too high, given low recent productivity growth, implying upside risk to inflation.
Subsequently, the labour price index, published for Q3, showed that wages growth had slowed by more than expected. Other indicators also suggested some further loosening in labour market conditions, including a key survey of Australian business conditions.
Last week, the board minutes then added a critical nuance, suggesting that board ‘members considered that further easing may be appropriate in the period ahead’. This was more forward guidance than we have seen from the RBA in quite some time.
This week, we received investment data showing strength in mining in Q3, but weakness elsewhere, and significant downward revisions to investment intentions for 2012/2013.
As such, it’s another close call but, on balance, we still expect a 25 basis point cut by the RBA next week.