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4 May 2016
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.”
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.”