3 May 2016
Australia: Interest rates at a new low – ING
James Knightley, Senior Economist at ING, notes that the Reserve Bank of Australia provided a modest surprise by cutting the cash rate to 1.75%.
Key Quotes
“The market was narrowly in favour of the RBA holding rates overnight, but in the end, the surprise drop in inflation coupled with lingering concerns about currency strength were enough to push the committee into a 25bp rate cut. CPI is now just 1.3%YoY, which was described as “unexpectedly low” with the outlook for inflation now lower “than previously forecast”
The strength of the housing market had previously been cited as a factor as to why there may be limited scope for further easing, but the accompanying statement argued that the strengthening of lending standards have helped moderate price pressures. Consequently “the potential risks of lower interest rates in this area are less than they were a year ago”.
Nonetheless, the RBA remain upbeat on the outlook for growth, highlighting decent credit growth, the low interest environment, a strengthening labour market and clear evidence that the economy is rebalancing following the mining investment boom. Indeed, there wasn’t an explicit easing bias, pointing at further near-term rate cuts. That said, with the housing market less of a constraint on future action, we could see a further rate cut should the Australian dollar strengthen again, which could “complicate” the growth story.”
Key Quotes
“The market was narrowly in favour of the RBA holding rates overnight, but in the end, the surprise drop in inflation coupled with lingering concerns about currency strength were enough to push the committee into a 25bp rate cut. CPI is now just 1.3%YoY, which was described as “unexpectedly low” with the outlook for inflation now lower “than previously forecast”
The strength of the housing market had previously been cited as a factor as to why there may be limited scope for further easing, but the accompanying statement argued that the strengthening of lending standards have helped moderate price pressures. Consequently “the potential risks of lower interest rates in this area are less than they were a year ago”.
Nonetheless, the RBA remain upbeat on the outlook for growth, highlighting decent credit growth, the low interest environment, a strengthening labour market and clear evidence that the economy is rebalancing following the mining investment boom. Indeed, there wasn’t an explicit easing bias, pointing at further near-term rate cuts. That said, with the housing market less of a constraint on future action, we could see a further rate cut should the Australian dollar strengthen again, which could “complicate” the growth story.”