RBA rate decision - where to from here?

Livewire News

The RBA announced at 2:30 pm today a cut in the cash rate of 25 basis point, bringing the rate down to 1.75%. Markets and the currency responded strongly; the AUD fell from 0.7706 to 0.7558 soon after the announcement, and the ASX200 jumped from 5269.4 to 5327.4 and continues to trade higher. Chris Caton, Chief Economist at BT Financial Group, called it a month ago; “there is one other factor that could precipitate a further rate cut; suppose that we get a surprisingly low CPI inflation result at end-April. A May rate cut cannot be ruled out completely.” More recently, Savanth Sebastian at Commsec declared today’s a ‘live’ meeting, saying “there’s a strong chance the Reserve Bank could cut the cash rate on Tuesday to a record low 1.75% following the release of weaker than expected March quarter inflation.”

Westpac Chief Economist, Bill Evans, missed the mark this time around; “The Reserve Bank Board meets next Tuesday to decide whether to cut rates. Markets and media are strongly favouring a rate cut. We are sticking with our view that the Board will decide to hold rates steady.” While the NAB Economics team suggested it was close to even odds, with a 55% chance of a cut.

We spoke with Charlie Jamieson from Jamieson Coote Bonds a couple of weeks ago, who pointed out that inflation (not released at the time) was the critical data point. More interestingly, in his view, we’re in for another cut; “we think if they have to move it will be at least 50 basis points - they don’t have a history of tweaking. That probably wouldn’t be delivered in one hit; it’s probably delivered in 2 x 25.”

Altair Asset Management doesn’t expect much impact from the rate cuts, but there is at least one positive; “at least it could go some way to arresting the fading strength in household spending.”


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