RBA governor, Philip Lowe, will have a great deal of explaining to do
The central bank lowered its economic projections but decidedly left the cash rate unchanged - for a 30th straight time (!) - in their meeting today. They lowered their 2019 growth forecast to 2.75% from 3.00% previously and lowered their 2019 underlying inflation forecast to 1.75% from 2.00% previously. They also moved to lower their 2020 underlying inflation forecast to 2.00% from 2.25%.
What's notable here is that the 2019 inflation forecast basically means that the RBA sees inflation falling below their target band of 2% to 3% (not that inflation has fallen between that range in the past three years anyway), if their preferred measure of inflation (trimmed mean CPI) is to go by.
If you ask me, I just don't see what solid reasoning is there to defend holding the cash rate steady alongside a "lowflation" forecast. I'm inclined to believe that the RBA is politically motivated in their latest decision here, with the elections only 11 days away. But we'll know soon enough I guess, the RBA next meets on 4 June.
Judging by these forecasts, I would expect them to follow through with a rate cut next month given that we'll have politics out of the way by then. But the fact that they didn't do so this time around will no doubt still leave some question marks hanging over the decision.
At this stage, the RBA is either going to tell markets it will try to get ahead of the curve - by cutting rates next month - or they will be telling markets that the labour market is robust enough to counteract weakening inflation pressures - which means that no cuts will likely materialise any time soon.
I'd chalk today's move as being politically motivated for now but the June decision will bare all of the RBA's true intentions and whether or not they are at risk of following other developed economies into facing a "lowflation" battle.
