RBA SoMP: Marking time to November - TDS

Research Team at TDS, suggests that while the RBA delivered a -25bp cut to 1.5% with a relatively neutral statement on Tuesday, expectations for today’s quarterly Statement on Monetary Policy (SoMP) weren’t that high, with consensus expecting unchanged GDP and inflation forecasts.

Key Quotes

“As the forecasts are all-but unchanged, financial markets are not materially different compared with levels prior to the headlines hitting the screens. In contrast, the May SoMP was a blockbuster, featuring slashed inflation forecasts and a fresh perspective from the Bank that “this time is different”, with above-trend growth and a decent labour market not delivering higher wages growth or inflation.

We suspect the key to Tuesday’s rate cut is the fact that “uncertainty” (example above) appears 28 times in the 74- page document, compared with half that (14) in May. While we will never know the “raw” Board debate in the meeting (the Board Minutes are rather sanitized) we suspect that Tuesday’s cut was about ensuring that the Bank’s GDP and CPI forecasts remain unchanged, with no confidence that a rate cut could spark increases in both.

ACGB yields at the short end (3yrs 1.43%) are back to yesterday’s levels after opening lower, while 10yr yields are -6bp lower at 1.888%, but due to lower opening levels, nothing to do with the SoMP. The AUD wanted to rally, but with no significant triggers in the statement, it is barely grinding higher, currently $US0.766.

RBA Deputy Governor Dr Philip Lowe assumes the Governor’s role from 18 September, giving him six weeks to settle into the top job before the markets’ post-CPI expectations will run rife for another cut to 1.25% at the 1 November meeting. Current OIS for November is 45%, and we suspect will trade closely around the 50/50 level until the 26 October Q3 CPI report.”