Will the Reserve Bank of Australia’s next meeting see a rate cut?

Will the Reserve Bank of Australia’s next meeting see a rate cut?

The next meeting in on February 3, 2015 and there is quite a bit of chatter around that we’ll see a cut to the official cash rate target. Its currently at 2.5% and there are some analysts saying a cut to 2.25% is likely.

Those saying so are in a minority, but, as an example, they include Westpac’s Chief Economist Bill Evans, who is worth listening to.

Evan’s comments on the RBA Minutes yesterday talk again about the likelihood of a cut (bolding is mine):

• The minutes … contained one significant surprise … “They [the Board] noted that market expectations implied some chance of an easing of policy during 2015 and discussed the factors that might be producing such an expectation”

Says Evans on this:

• … if a discussion on market pricing was standard then November should also have warranted a discussion. More likely the Bank has decided to raise the issue of rate cuts in this way
• Previous experience indicates that this type of strategy is the first stage in moving towards a formal easing bias or possibly cutting rates outright
• It is of considerable interest that the 16-18bps before the December meeting is now around 32bps, providing an even more persuasive argument for the Board

Evans notes reasons for a rate cut:

• GDP growth is below trend … again quoting the Minutes: “GDP growth was still expected to be below trend over 2014-15 before gradually picking up to an above trend pace towards the end of 2016.”
• Inflation outlook is not a threat: “spare capacity in product and labour markets likely to weigh on inflationary pressures for some time”
• And also: “Members noted that subdued labour market conditions were likely to weigh on consumption growth and consumer confidence more generally”.

–

In other comments Westpac says:

• Recent missives from the Reserve Bank indicate that the Governor is most focussed on boosting confidence and has questioned whether cutting rates might send the wrong signal
• The Governor’s comments are discouraging for our call for an early cut. Nevertheless, the next meeting is six weeks away. February is always a better time to move policy than March (which is favoured by markets) because it coincides with the Bank’s quarterly Statement on Monetary Policy which allows the Bank to explain its decision.

–

I also referred yesterday to an MNI article (from Sophia Rodrigues Sydney Bureau Chief, MNI … @MNIANZ on Twitter to follow), here, where she says that any action (from the RBA on February 3) is highly data-dependent:

• By the time of this meeting the RBA will have fresh economic forecasts prepared (including inflation and growth) for the Statement of Monetary Policy which will be released on February 6
• Part of the case for a lower rate has already been made by third-quarter GDP data

–

I said yesterday I thought it unlikely we’ll get a cut from the RBA in February (actually said it twice, here and here). No change from me.