RBA: A strong easing bias in August monetary policy statement - ANZ

Kieran Davies, Research Analyst at ANZ, notes that as expected, the RBA’s statement fell short of providing explicit forward guidance.

Key Quotes

“But we interpret the larger number of risks to the outlook and the RBA’s forecast that average underlying inflation would be stuck at the bottom of the 2-3% target band by the end of 2018 as a strong easing bias.

Our base case is that rates remain on hold at 1.5%, but we see a clear risk of further cuts given the RBA expects persistently low inflation and with banks passing on only half of this week’s rate cut to home loan customers. The AUD is also important given the RBA thinks it still poses a “significant source of uncertainty” around the outlook.

In our view, today’s statement reinforces this risk. With the cash rate now close to the 1% floor for the cash rate, we think the RBA would be looking more closely at unconventional options if downside risks to the outlook materialise.”