7 Apr 2015
RBA holds rates steady, but maintains an easing bias – Capital Economics
FXStreet (Barcelona) - Paul Dales, Chief Australia & NZ Economist at Capital Economics reviews the RBA rate decision, and notes that the desire for a weaker AUD and the slowdown in economic growth might lead the central bank to cut rates to 1.5%.
Key Quotes
“By deciding not to cut interest rates today from the current level of 2.25%, the Reserve Bank of Australia missed an opportunity to achieve the further weakening in the Australian dollar that it so badly craves. That said, if we are right in thinking that a 0.25% reduction in May will be followed by two more cuts to 1.5% by December, the Australian dollar may yet weaken to US$0.70.”
“By again saying “further easing of policy may be appropriate over the period ahead” in the statement, the RBA provided a strong hint that it will cut rates to a new record low of 2.0% in May. This makes perfect sense to us, but policy will have to be loosened further thereafter.”
“A reduction in rates from 2.5% to 2.0% and a moderately weaker exchange rate won’t be enough to prevent the slowdown in economic growth that lies ahead.”
“The RBA will probably cut rates to 2.0% in May and then sit back for a few months to see how the economy evolves. By the middle of the year, however, we think it will be clear that the economy needs more help.”
“Two more cuts to 1.5% would take rates below the level currently expected by the markets, thereby securing the weakening in the exchange rate that the RBA wants.”
Key Quotes
“By deciding not to cut interest rates today from the current level of 2.25%, the Reserve Bank of Australia missed an opportunity to achieve the further weakening in the Australian dollar that it so badly craves. That said, if we are right in thinking that a 0.25% reduction in May will be followed by two more cuts to 1.5% by December, the Australian dollar may yet weaken to US$0.70.”
“By again saying “further easing of policy may be appropriate over the period ahead” in the statement, the RBA provided a strong hint that it will cut rates to a new record low of 2.0% in May. This makes perfect sense to us, but policy will have to be loosened further thereafter.”
“A reduction in rates from 2.5% to 2.0% and a moderately weaker exchange rate won’t be enough to prevent the slowdown in economic growth that lies ahead.”
“The RBA will probably cut rates to 2.0% in May and then sit back for a few months to see how the economy evolves. By the middle of the year, however, we think it will be clear that the economy needs more help.”
“Two more cuts to 1.5% would take rates below the level currently expected by the markets, thereby securing the weakening in the exchange rate that the RBA wants.”