Daily Commentary BY THE CURVE TEAM –

Pressure Building on RBA

6th of November, 2018

It was a relatively quiet start to the week in the context of the wild ride we have been on for the past few weeks. That is likely to change though with plenty on over the next 24 hours.

Offshore the focus over the next 24 hours will be on the mid-term elections in the US. There have polls suggesting that Trump and the Republicans might hold on to both houses while other suggesting that the Democrats might spoil Trumps party. Time will tell but which ever way the result drops, markets are likely to react.

In Australia, the focus will be on today’s RBA announcement. The key data releases, such as growth and employment, continue to support the RBA’s outlook However the latest inflation and retail sales data along with the collapse in auction clearance rates suggest that things aren’t as rosy at the RBA suggests.

It puts the RBA in a tricky situation. Governor Lowe has stressed on many occasions that the risk to financial stability should the RBA decide to lower rates outweighs the potential upside. With tighter lending standards thanks to APRA and the Royal Commission, those risk to another surge in credit growth may have diminished somewhat over the past few months.

The RBA will eventually have to acknowledge the downside risks that currently pose a threat to their outlook a little more candidly in time. Whether or not they decide to do it now is another question.

David Flanagan

Director - Interest Rate Markets