The RBA left the cash rate unchanged at its June meeting in a widely-expected decision. What did change, however, is what is referred to as the RBA’s “bias”; that is words, sentences and phrases which economists and observers which can imply the direction of the banks next move.
Westpac said they expected to see words from the after-meeting statement such as “scope”, “time being”, “assess” and “further easing” to indicate an easing bias. Instead it got what it considered to be a neutral statement. Commonwealth Bank reached the same conclusion. “A lack of any overt easing bias was surprising and the language conveyed a reluctance to move…Nothing now seems likely before August, after the election on July 2 and the Q2 CPI print in late July.” ANZ was just as surprised as Commonwealth Bank. “The lack of an explicit easing bias makes an August rate cut a much closer call than we had previously thought.” Even so, ANZ still expect another rate cut down to 1.50% given the RBA’s own inflation forecasts. NAB seemed less surprised than the other banks but arrived a pretty much the same conclusion. “The Statement suggests the RBA’s May easing is currently seen as sufficient to return inflation to target and achieve sustainable growth. That said, inflation remains important and a low Q2 CPI print (due out 27 July) could still trigger a cut further down the line.”
Cash markets responded to the RBA statement by reducing the probability of a July rate cut from 26% to 14%, while an August cut went from 64% to 48%.