RBA: First of two cuts delivered - TDS

Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, points out that the RBA has delivered the widely anticipated 25bp cut to 1.25%.

Key Quotes

“The markets then went straight to the final paragraph to assess the Bank's bias, and the doves were disappointed with the more neutral stance, where "Today's decision to lower the cash rate will help make further inroads into the spare capacity ... assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target".”

“The RBA reiterated that GDP growth is expected to be 2¾% this year and next, and that underlying inflation is expected to reach 2% next year.”

“AUD initially rallied on the lack of easing bias, then cooler heads prevailed. The RBA explicitly said last month that its growth and inflation forecasts were based on two rate cuts. So we conclude that today's decision was one of two cuts to 1%.”

“We pencil in a follow-up August cut, with fiscal policy likely to take care of the other 50bp of easing that the markets and some analysts are looking for. Knee-jerk August OIS is 77% priced for another cut.”