RBA cash rate to be kept at 1.5% throughout 2017 - Westpac

Martina Song, Research Analyst at Westpac, suggests that even after the growth remains strong, the markets prices only around 20% chance of a cut by Dec 2016 and Westpac expects the RBA cash rate to be kept at 1.5% throughout 2017.

Key Quotes

“The RBA cut the cash rate in Aug to 1.5%, its second easing of the year, with both following very low inflation readings.

Its Aug quarterly statement projected sustained low inflation that leaves the door open for yet more easing at some point. Core CPI is only seen returning to the bottom of the RBA’s 2-3% band by June 2017 and not rising from 2% (mid) even by Dec 2018.

Given the familiar language and neutral bias in the Oct statement, we were surprised that the meeting minutes and RBA governor Lowe’s first speech emphasised the importance of Q3 CPI. We believe however that a low inflation print is unlikely and so should not see a further RBA cut before year-end.

The RBA has also noted the mixed employment picture. The softer trend of employment – a falling participation rate, growth in concentrated in part time jobs, and underemployment rising – is of concern.”