RBA Rate Decision Leaked?

A clearly miffed Barclays has shifted its rate expectations after Terry McCrann in the Herald Sun this morning flagged a rate cut in February which economist Kieran Davies interprets as coming straight from the RBA. Here's Davies:

  • The RBA has strongly signalled via the media that it is planning to cut rates on 3 February, when the board meets for the first time this year.
  • We are now reluctantly factoring in rate cuts. Our longstanding view on policy has been that rates would be steady until this year, where we factored in modest hikes later in 2015 as the economy improved, which reflected our spread-adjusted Taylor rule analysis based on the RBA?s own economic forecasts.

  • The strong signalling of an imminent cut has seen us reluctantly shift to factoring in two 25bp rate cuts in February and May and then no change until a couple of modest hikes in H2 2016, where the reluctance reflects our less pessimistic view on the economy and past instances where indirect signalling gave the wrong guide to the RBA?s ultimate actions.

  • We only narrowly favour February over the alternative of March given that the RBA can justify a cut in more detail in the 6 February Statement on Monetary Policy and the 13 February parliamentary testimony.

This episode raises some important questions for the RBA, Davies continues:

  • Although the RBA has a long history of indirectly signalling its intentions to the market via the media, it is very surprising to us that the RBA did not schedule a keynote speech to articulate its change in thinking. We would have thought that was a better way to communicate a major shift in view given that the last public statements from the bank was December?s forward guidance of a period of stable rates and the RBA Governor pushing back on market expectations of a cut.

  • Assuming the RBA does cut rates in February, it seems likely to us that the market will be less accepting of future guidance from the RBA, while the strength of the signalling makes us wonder whether other board-members were consulted about restarting an easing cycle.

  • Finally, we think that a further easing is likely to provide a fresh boost to house prices, where last year the RBA worried about the potential for investor-led strength to create economic instability.

Read more: http://www.smh.com.au/business/mark...a-eyeing-90-20150129-3p1m9.html#ixzz3QCrDoX71
 
Hopefully they now defer it at least a month just to give the smarties a head ache :)

The way the AUD is falling I can see inflation ahead. We import so much stuff now, costs must increase over the next few months.

If you remove the volatility of petrol (as per usual) we are still over 2% inflation annually
 
Today is the "I told you so" moment of the few economists who predicted correctly today's RBA decision.

And I'm quite impressed with Westpac's Chief Economist Bill Evans for predicting the rate cut today in early December last year. He cemented his reputation as the "Rates Whisperer". He's been pretty good with his predictions.
 
rizzle said:
62-38 in favour of a cut based on the cash rate futures.

What is everyone here thinking? RBA has a tough call to make tomorrow. Sydney could go berserk if there is another cut.
Click to expand...

Thanks for that rizzle.

I think todays release on lending market standards may play a role. It showed a general loosening in lending standards that will have the regulators worried.

Although it seems that the RBA have decided to keep rate cuts and lending market issues separate though. The economy needs stimulating, some markets are exhibiting very frothy conditions. There's other available options to address financial stability issues than using the interest rate lever (APRA prudential tightening).

My bet is over the year we'll see a combination of rate cuts to stimulate the broader economy with gradual tightening in lending policy aimed at keeping the lid on excessive credit build up (and in turn, excessive house price growth).

Cheers,
Redom
 
rizzle said:
62-38 in favour of a cut based on the cash rate futures.

What is everyone here thinking? RBA has a tough call to make tomorrow. Sydney could go berserk if there is another cut.
Click to expand...

They have to do it.

Whether they pull the band-aid slowly and wait for April or May, or quickly and cut tomorrow (where my money is) is the only question.
 
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