Will They or Won’t They
Following our report yesterday on the latest inflation data, we highlighted that was an element of doubt over whether the RBA would move again on interest rates when they meet on Tuesday week by cutting the cash rate a further 25bp.
Since then we have seen both sides of the debate aired publicly with Westpac’s Bill Evan’s reaffirming his view that they RBA will deliver another 25bp cut in May while the NAB had now retracted their call for a May cut and pushed it back to August.
According to the NAB’s release “recent readings on retail sales, dwelling investment and business conditions have all improves and led us to revise up our near term domestic demand forecast modestly”. They also see some of the evidence of the previous reductions in the cash rate starting to gain traction through indicators such as the recent strength in the employment market. When you combine this with Stevens speech from New York earlier in the week and it is entires possible to envisage the RBA holding and taking a little more time to asses whether or not lower rates and cheaper credit will provide any further benefit to the economy.
A hold of rates in May if combined with a positive message for the economy in the budget derived from solid policy initiatives to improve the economy would be a sign of economic strength. It would help bolster confidence and in turn reduce consumers anxiety about job security which seems to be on of the major hurdles to a smooth transition away from mining led growth to more traditional drivers.
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