The CPI data published last week showed that the June quarter inflation was 0.4% taking the annual rate of inflation here in Australia at just 1%. The underlying inflation annualised was 1.5%. In line with our earlier posts, in view of the low inflation print, we are of the view that the RBA will cut rates by 25 basis points to 1.50% tomorrow.
Until the RBA rebalances its inflation target in the wake of weak global outlook and RBA's own outlook on the domestic economy which is forecast to grow only at 1.5% in the medium term, we cannot see RBA not cutting the rates.
One question mark is what the rate cut will do to the housing market. However from a policy perspective, we do not see RBA taking shelter of the housing sector and not cut tomorrow. In fact, except for NSW, where the house prices continue its growth trajectory, the effect of the last rate cut had subdued or no effect on the housing sector.
So we maintain our call for an August rate cut but we do believe that the RBA will come out with a more realistic inflation band targeting soon - perhaps when Glenn Stevens hands over the Governor's baton to Dr Phillip Lowe in September.
Until the RBA rebalances its inflation target in the wake of weak global outlook and RBA's own outlook on the domestic economy which is forecast to grow only at 1.5% in the medium term, we cannot see RBA not cutting the rates.
One question mark is what the rate cut will do to the housing market. However from a policy perspective, we do not see RBA taking shelter of the housing sector and not cut tomorrow. In fact, except for NSW, where the house prices continue its growth trajectory, the effect of the last rate cut had subdued or no effect on the housing sector.
So we maintain our call for an August rate cut but we do believe that the RBA will come out with a more realistic inflation band targeting soon - perhaps when Glenn Stevens hands over the Governor's baton to Dr Phillip Lowe in September.
MARKET DATA
| Australia Cash rate Australia 90 day bank bill Australia 10 y bond US 10y Govt bond AUD/USD AUD/EUR AUD/JPY AUD/CNY ASX 200 S&P 500 Dow Jones Industrial Average Shanghai Composite Brent Oil (USD per BBL) Gold Spot (USD per oz) *Iron Ore 60% MBIOI-IR index USD/t (Updated Wednesday) | As at 29-Jul 1.75 1.87 1.87 1.45 0.7522 0.6790 77.94 5.0045 5,562 2,173 18,432 2,979 43.53 1,351 51.94* | As at 22-Jul 1.75 1.90 1.90 1.57 0.7476 0.6783 79.13 4.9860 5,498 2,175 18,570 3,012 45.69 1,322 50.05* |
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