Comments from a few economists on what to expect from the Reserve Bank of Australia on February 3.
Expect the RBA to revert to a dovish stance on Tuesday “explicitly acknowledging the possibility of further rate cuts”
But maintain view no further cut in the cash rate is likely
“The RBA is likely to rely on further currency depreciation to deliver additional easing. We expect it to maintain its view that the Australian dollar (AUD) is overvalued, despite recent depreciation, particularly given the drop in commodity prices”
AMP Capital’s economist Shane Oliver:
Says RBA will cut the cash rate next week
“It doesn’t matter a lot whether it’s in February or March, the key is that interest rates need to come down”
Says 50% chance the RBA will cut again, likely in May
Forecast no further cash rate cuts
But, says the RBA may shift ty an easing bias in their statement
Acknowledge that there is a risk the RBA “has changed its thinking about maintaining interest rates at levels well above the vast majority of central banks”
No change in forecast of RBA on hold in 2015
But … next week will be a close call
“… if the RBA does cut, it is unlikely to be a one-cut wonder; another rate cut could follow later this year”
Says the RBA next week “un-forecastable”
He cannot conclude that the RBA has changed its mind with certainty
Retaining his view that the RBA stays on hold
Concedes the meeting is “live” and the RBA could ease
Current forecast is for first cut in Q2 and a second later
Reiterate their previous view that the RBA will be on hold
But will change the guidance
Will drop ‘period of stability’, will instead say something like ‘appropriate for the time being’ or ‘scope for easing’.
Says two cash rate cuts, March and May
“In line with a new easing bias we expect the tone of the statement to shift slightly, focusing on easing mortgage demand and lower inflation as a catalyst to reduce rates a little further”
A hawkish outcome would be for the board to maintain the status quo, not only keeping rates on hold but sticking with the ‘period of stability’ guidance … “This looks like the biggest shock to market expectations with the probability of a rate cut next week priced at 65 per cent and a full 25 basis points cut priced for March. This is not a trivial risk, many tier one economists and others think the RBA will do nothing on rates this year”
The dovish outcome is a cut, an easing bias and a statement that indicates further rate cuts are likely. The market would likely price in a sub 2 per cent cash rate for some time in 2015
Sees a 60 per cent chance for its central case and the hawkish and dovish risks at 20 per cent each
“A hawkish outcome (maintaining the status quo) is the most significant risk for the currency. Indeed, the very prospect of rate cuts at any stage in 2015 will come into question if the RBA doesn’t move and keeps ‘period of stability’. This will be strongly positive for the currency given the quantum of cuts priced in at the moment.”
HSBC’s Says again the RBA will leave the cash rate on hold next week
But a “cut is certainly a possibility”, citing recent cuts by other global central banks
“The recent upside surprise to the Q4 2014 underlying inflation measures (0.7% q/q; market had 0.5%) should tell the RBA that demand has been holding up fairly well. At the same time though, the recent fall in oil prices is likely to deliver even lower inflation in future, which could leave the RBA with scope to consider cutting rates”
“In deciding whether to cut further, the RBA also needs to weigh the benefits of lower rates against the potential costs of over-inflating the housing market. We think this trade-off will see the RBA sit still with its 2.50% cash rate, rather than cut, but it is close.”
Earlier this morning Spain released Q4 GDP which grew at the fastest rate in 7 years. Q/Q GDP came in at 0.7% vs 0.5% prior, and 2.0% vs 1.6% prior, beating expectations of 0.5% and 1.9% respectively. That’s a faster pace of quarterly growth than the UK.
If there’s one country that has played the game and and made it work it’s Spain and well done to them. Unfortunately they still have some very big underlying issues like high unemployment but at least they are doing something rather than just talking about doing something like many other countries we could mention.
Spain suffered like everyone else in Europe but they’ve got their heads down and are hopefully coming out the other side.
The good news in mortgage numbers and consumer borrowings gives the government some ammo for the election but it will need to be sustained. It’s also good for the population if it carries on as it means that maybe, just maybe, we’re not going to see a return to the days of heavy debt burdens. That will be enforced if we start getting decent wage rises. The only slight from the consumer side was credit card borrowings rising to 295m from 276m in Nov. Given the data covers the holiday period, that’s not a bad rise in itself.
One swallow doesn’t make a summer so I’d want to see a trend develop before I start thinking that we’re getting somewhere in lowering debt levels.
Turning the page to businesses it’s a worse story for different reasons. Total lending to non-financials dropped 3.782bn from -0.079bn in Nov. Of that, SME lending was down -1.031bn from +0.301bn prior. I would like to think that coming out of the crisis businesses in general have made themselves more self sufficient and less reliable on debt, but that doesn’t mean there shouldn’t be a decent amount of credit flow. It’s either a reluctance of firms to borrow or evidence of still tight lending conditions.
I don’t want to see elevated levels of company debt but a nice steady flow that would indicate that UK companies are seeing decent activity and are happy to expand and use some borrowing to help that.
Again, it’s something we need to monitor over these early months and the numbers may get worse on election uncertainty
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