Daily Commentary BY THE CURVE TEAM –

More Central Banks Surprise Markets and Lower Rates

8th of August, 2019

The Bank of New Zealand, Bank of India and Bank of Thailand all surprised markets with larger than expected cuts.

Asia-Pacific Central Banks have provided markets with larger than expected cuts to their benchmark interest rates. Yesterday the BNZ cut by 50bps, whilst the BoI and BoT moved 35bps and 25bps lower respectively.

In moves that demonstrates the wide breadth of the potential impact from US-China trade tensions, many centrals bank appear to adjusting monetary policy preemptively to shore up their own economies.

Whilst the RBA does not explicitly take guidance from other central banks policy settings, the effect of moves by other banks through changes in currency valuations can influence their decision around local monetary policy. The market is clearly of the opinion that further action by the RBA is increasingly likely with the futures curve having now priced in 2 further cuts by February next year and a 50% chance of a 3rd by July 2020.

Given the events of the last few days, tomorrow’s update to the forecasts are now crucial to the medium term outlook for the domestic economy. Whilst the starting point of these forecast will be significantly lower due to hard data updates of late, the shape and level of their outlook for growth and other key metrics will provide great insight into the outlook locally.

Matthew Dunshea

Client Relationship Manager