Once again the RBA’s decision to maintain the official cash rate at 2.00% came as no great surprise to the markets, with banks such as Westpac saying prior the meeting there was “little chance” of a cut and cash markets had priced in a slim 6% chance of such a reduction. The statement from the meeting pointed to the domestic economy expanding moderately, offshore weakness, a strong US economy, but with some small changes from the September monthly statement. The deletion of the words “most of” in reference to the economy and the inclusion of Melbourne with Sydney as cities where house prices are rising strongly was seen by Commonwealth Bank as “marginally hawkish” but as Westpac’s Bill Evans noted, the statement had the “fewest number of changes to the previous month’s statement that we have ever seen.”
In spite of this, the market remains priced for a rate cut in Q1 2016 and a 50:50 chance of a second before August 2016, which Commonwealth Bank said was appropriate while at the same time saying that it can’t see rates reducing before January. Westpac’s view was the RBA statement would have been disappointing to “doves” and noted the small rise in 3y and 10y bond yields on the day.
ANZ said the RBA is “in wait-and-see mode” and a loss of momentum in the residential construction and the services trade sector will lead to a rise in unemployment and thus provide the impetus for 25bps rate cuts in February and May.
AMP’s Shane Oliver seemed a little less confident of a rate cut after this meeting even though he said the RBA still sees spare capacity in the economy and inflation contained. The statement “suggests only a very mild easing bias at best.”
Westpac’s Bill Evans said he thought the RBA will not change its 2015 and 2016 growth forecasts, which would mean the cash rate remains unchanged. He did, however, suggest “risks on rates remain to the downside particularly around the global outlook; the terms of trade; and the labour market.”
The full RBA statement can be read here.