RBA: Markets price only a tiny risk of a rate cut by August 2017 - Westpac

Sean Callow, Research Analyst at Westpac, suggests that markets price only a tiny risk of a RBA rate cut by August 2017 and then toy with the idea of a rate rise by year-end (33% chance) after it kept rates unaltered in its March meet.

Key Quotes

“The RBA held the cash rate at 1.5% in March and maintained a neutral outlook in its statement. This was fully expected.”

“The statement showed increased optimism over the global outlook, reiterating that, “(t)he improvement in the global economy has contributed to higher commodity prices, which are providing a boost to Australia's national income.”

“The RBA noted the strong rebound in growth in Q4 2016 and said “business and consumer confidence are at, or above, average“. But while consumption growth picked up in Q4, “growth in household income remains low.”

“Westpac’s base case is that the cash rate remains at 1.5% throughout both 2017 and 2018. We see risks to this view skewed more to a rate cut than to a hike, as growth in 2018 could disappoint.”