Curve Daily Commentary, May 1, 2015

Rate Cut is Coming…


Just as the needle was pointing towards a win for the no cut camp in the debate over next Tuesday’s rate cut decision (see graph for lower probability over the last week), Peter Martin, the ‘informed’ journalist who called the February cut, has said the RBA will cut again next Tuesday.

ASX Implied Cash rate
The article hit the SMH website just before 1am last night and had an immediate impact on interest rate expectation. Martin said that “concern about a deteriorating economic outlook and a resurgent Australian dollar will force the Reserve Bank to cut interest rates on Tuesday, taking the official cash rate to an all-time low of 2 per cent”. The market has moved since the articles release with a cut now more than a 50/50 chance. 

With the RBA Board having no updated forecasts in March and April, according to Martin updated “forecasts are being delivered to board members on Friday and will be made public on Friday next week. They’re likely to show either a further deterioration in forecast growth or no change, meaning that the outlook has not improved in the way that the board had hoped”.

Tipping the Board over the edge and forcing them to cut “is new data on business investment plans, which shows that not only is mining investment set to fall sharply in 2015-16 but that non-mining investment is expected to fall as well, despite the talk about new economic drivers emerging to take the place of mining”.

So there you have it, according to the ‘informed’ journalist we will get another 25bp cut next week from the RBA. If the RBA does decide to cut, it will be very interesting to see what Governor Stevens has to say in his accompanying statement about the economic outlook. All will then be revealed when the more detailed quarterly Statement on Monetary Policy is released next Friday.