RBA set to stay on hold this month - RBS

Research Team at RBS, suggests that in the week ahead the Reserve Bank of Australia holds its first board meeting under new Governor Lowe and the central bank is set to keep interest rates unchanged at 1.50% and wait instead for the Q3’16 CPI report to be published on October 26 before considering any further easing.

Key Quotes

“October’s meeting statement is also likely to be very similar to September’s as Governor Lowe has stuck closely to the same positions as his predecessor Stevens.

The short term rates market has just under one 25bps rate cut priced in over the next year for the RBA. This seems appropriate. The central bank is reluctant to cut rates again after May’s and August’s moves. But if underlying inflation unexpectedly falls again from its current levels of 1.3% and 1.7% then the RBA may consider easing again.

The RBA is already forecasting core inflation to remain between 12% for the rest of the year and thus below its 23% target band. Therefore it would need to see underlying inflation in the Q3’16 CPI report fall towards the bottom of its forecast range for 2016 to consider cutting interest rates further from 1.50%.”