RBA Leaves Rates on Hold but Opens the Door for Future Cuts

7th of August, 2019

The RBA left the cash rate on hold at 1.00% yesterday but increased the easing bias in their messaging.

After 2 successive rates cuts, the RBA delivered a wildly expected pause to their current easing cycle but outlined they are ready to further ease monetary policy if needed. In a brief statement foreshadowing many of the key updates we will get in Friday’s Statement on Monetary Policy, they outlined that the central scenario remains intact with growth expected to be 2.5% in 2019 and 2.75% in 2020.

Interestingly, these growth forecasts appear to have already factored in any uplift from recent interest rates and tax cuts. That begs the questions that if this and their other key forecast, of unemployments slowly trending towards 5.00% over several years are correct, then in order to achieve the 4.5% NAIRU further stimulus may be needed.

With the RBA forecasts presented under the technical assumptions of a cash rate following market pricing, it is now increasingly likely that we will see further easing by the RBA and continued petitioning of the government by the RBA for further stimulus.

In a positive development yesterday, Australia’s trade balance printed at another record surplus, $8bn vs $6bn expected. The key driver in this being continued growth in exports of irons ore and coal. Worryingly, with recent trade tensions, these two exports categories would likely be the two most negatively effected by slowing of growth in Asia.

With the governments ability to deliver stimulus and their politically important budget surplus relying on these bumper trade balances, the evolution of this data series in coming months will be of key importance for the outlook.

Matthew Dunshea

Client Relationship Manager