Hopes RBA won’t repeat shock rates hold as board meets
Jacob Shteyman |
Markets are almost certain the Reserve Bank of Australia will cut interest rates at its August meeting despite the board facing an increasingly uncertain environment.
Benign quarterly inflation figures released by the Australian Bureau of Statistics in July should convince the board to cut the cash rate in a two-day meeting that starts on Monday, AMP deputy chief economist Diana Mousina said.
In fact, a cut of 25 basis points to 3.6 per cent should have happened already, Ms Mousina said.
Mortgage holders will be hoping lighting doesn’t strike twice after the central bank’s board voted in a 6-3 decision to leave rates on hold in July, despite markets pricing in a near-certain chance of a cut.
The majority of economists also expect a cut this time around, including 31 out of 34 experts surveyed by comparison website Finder.
But with markets predicting another two cuts following this one, RBA governor Michele Bullock is likely to try to pare back expectations in her post-meeting communications after the meeting wraps up on Tuesday.
“We think that the RBA will still sound cautious on giving too much forward guidance and remain of the view that interest rates do not need to be aggressively cut for now, given their concern that upside inflation risks may occur again in Australia,” Ms Mousina said.
Another potential concern for Ms Bullock could be developments at the US central bank.
Ms Mousina said we could be seeing the “Trumpification” of the Federal Reserve after the US president’s appointment of ally Stephen Miran to replace departing governor Adriana Kugler.
Mr Miran’s appointment heralds a more dovish Fed board, which could mean lower US interest rates if Donald Trump gets his way.
“Stephen Miran’s appointment to the Federal Reserve board will likely increase pressure for deeper rate cuts while broadening concerns around Fed independence,” JP Morgan chief economist Bruce Kasman said.
While the RBA has been more focused on domestic developments in recent months, the Fed’s outsized influence on global borrowing costs can set the tone for International monetary policy.
When the Fed cuts, central banks around the world have tended to follow.
And a dovish turn could have consequences for the Australian dollar, investor expectations and the broader economy.
AAP
