RBA: Further Rate Cut is Likely – Goldman Sachs
Research Team at Goldman Sachs, notes that the RBA cut the cash rate by
25bps to a record low of 1.75% at its May meeting, on the 1 year
anniversary of its last rate cut.
Key Quotes
“The
cut was expected by 12 of the 27 economists surveyed by Bloomberg,
although prior to the CPI print on Wednesday few economists had forecast
the cut. Since February, we have forecast that the RBA would ease in
May. Post this move we continue to believe that a further rate cut is
likely, albeit it will most likely be towards the end of the calendar
year.
Encouragingly the rationale for why the RBA has chosen to
recommence an easing cycle is consistent with our previously published
views; a likely undershooting of the inflation target, slowing economic
growth momentum, a moderation in some of the employment data and signs
that macroprudential policies have had some success in containing excess
credit growth.
The RBA do not appear to have fundamentally
altered its global or commodity views in light of recent better data
from China and iron ore prices. Indeed, the RBA retained its language on
the AUD, noting that “an appreciating exchange rate could complicate”
the re-balancing efforts of the Australian economic transition from
mining-led growth.
The RBA statement that attended to the
decision provided no clear forward guidance, although we note that this
is typical in the month of an interest rate adjustment and in the
context of the looming Commonwealth Budget and federal election, this
approach is sensible. It is notable that major Australian banks have
already begun the pass through of the rate cut in full which from our
perspective was the tactical advantage of the RBA choosing to adjust
policy in the lead up to the election.”
