Economists at 12 banks with their preview on what to expect from the Reserve Bank of Australia meeting on 7 April 2015. Reminder - the announcement is scheduled at 0430GMT.
I've been flat out this morning jumping in and out cabs around Martin Place trying to find if anyone from the RBA has left a file with a copy of the decision in it. No luck so far.
But, anyway ... this from the good folks at eFX:
Goldman: We expect the RBA will to cut the cash rate to 2.00%, while consensus expects rates on hold.
RBS: After holding its policy rate steady at 2.25% in March, we expect the RBA to lower the cash rate target by 25bp at their April meeting. The RBA noted in March that "further easing of monetary policy may be appropriate over the period ahead" which is, in our view, surprisingly blunt guidance that additional rate cuts may be needed. Downside risks to both commodity prices and growth in China paired with a still-below-trend domestic growth pace are likely enough to merit such further easing at the April meeting. We also anticipate the RBA to keep a similar tone on the FX rate, continuing to note that "a lower exchange rate is likely to be needed to achieve balanced growth in the economy." We see a push through parity in AUD/NZD as likely and ultimately expect AUD/USD to come under further significant pressure this year.
JP Morgan: We believe the RBA will wait until May before easing, providing some time to assess how the booming housing market is digesting February's rate cut. Waiting would also give officials another round of employment and inflation news. Still, with the unemployment rate already higher now than during the global financial crisis and inflation remaining contained, the risks of a cut next week are high. Further sharp declines in key commodity prices and the still uninspiring rotation to non-mining sources of growth argue for a lower cash rate. The lower AUD is helping to ease monetary conditions, but RBA officials may wish to front-load any additional stimulus, partly to disentangle their action from the May Budget process.
UBS: We expect the RBA to cut the cash rate by another 25bp to a record low of 2.00% in April. The change in this view is driven by lower commodity prices amid weaker Chinese property activity, bleak capex intentions and soft US data delaying Fed action. The RBA may still wait until May to review Q1 CPI, though.
Nomura:We expect no change in its cash rate in this meeting and a 25bp cut on 5 May 2015, in line with market consensus. However, we flag that the risk of an April cut has risen materially due to the slide in iron ore prices.
Credit Agricole: With the AUD TWI finally weakening again following the Fed's dovish push-back, the last thing the RBA would want to see is a resurgent AUD. Given a weak NFP, however, this is exactly the type of market environment policy makers could encounter going into this week's decision. If the RBA were then to subsequently leave rates on hold, the short squeeze might be spectacular given current expectations. This is not a desirable outcome and it argues that the RBA may not want to disappoint the markets. Clearly it is a tough call, but the weaker NFP pushes the balance of probabilities in favour of a cut.
Barclays: We narrowly favour a 25bp rate cut by the RBA, to 2.00%, on 7 April (Tuesday), given that the RBA is indirectly signaling it may act sooner than it previously thought. The OIS market is pricing in an 80% chance of a cut in April. The RBA has long held the view that a lower exchange rate is needed to play a greater role in helping to rebalance the economy amidst the mining downturn. As such, we think the recent USD pause, driven by the market's reassessment of the timing and pace of the Fed's tightening cycle, could be a factor driving the RBA to act sooner and faster to bring about a lower AUD exchange rate. Given our view that RBA will cut in April rather than in May, and rising risk of a sub-2% cash rate later this year, we have gone short AUDUSD.
BofA Merrill: The RBA meets this week and in a finely balanced decision it will likely leave rates on hold, in our view. We favour a May cut as we think this allows the RBA a better opportunity to assess broader conditions as well as the opportunity to receive additional data on inflation and unemployment that should support the case for further easing. May's meeting will also be followed by the Statement on Monetary Policy which gives the RBA the opportunity to more fully explain its reasoning and outlook. Although if the RBA assesses the recent decline in iron ore prices and the stabilisation of the A$ as threatening to have a material negative impact on the outlook already, then holding off for one month is likely unnecessary, in our view. Irrespective of either an April or May cut, we expect the RBA to leave rates on hold subsequent to that move. We do not think cutting rates below 2%, as the market is pricing, is at this stage necessary or wise given the dynamics in the economy and property market.
Wesptac: Reserve Bank to cut cash rate by 25 bps this week and adopt a "soft" easing bias. For now we are comfortable to continue to expect a rate cut this week of 0.25% to be followed by a period of stability marked by a clear easing bias. That bias will be maintained until the Bank gets a more accurate insight into the sustainability of its current 3.5% forecast for growth in 2016.
BNP Paribas:Our economists expect a 25bp cut at this meeting. The rates market is pricing a 75% chance of a cut while economist's expectations are tipped in favour of rates being left on hold (57% of economists expect rates on hold).
NAB: Though NAB's economists (just) favour May over April for a reduction in the Cash rate to 2.0%, and indeed that is (just) the consensus among economists, market reaction is all about 'what's price in'. In this respect, the money market left off for Easter still discounting a 75% probability of a cut today. As such, RBA inaction guarantees a knee jerk AUD-positive reaction and higher money market rates, a cut will almost inevitably see AUD/USD print new cycle lows below 0.7561 (the 12 March low) and also herald the start of a long-awaited AUD/NZD 'parity party.
Morgan Stanley:We remain bearish on AUD. Markets are pricing in a roughly 50% chance of a cut at the upcoming RBA meeting, but local news sources suggest it may be higher than that. What's more, iron ore prices continue to plummet, which should add pressure to the currency. Our commodities team recently revised its iron ore forecasts lower, suggesting that this could continue.
