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6 May 2016
RBA SOMP: It’s all about (Lowe) inflation - TDS
Research Team at TDS, notes that the RBA Statement on Monetary Policy slashed its underlying inflation projections but left GDP and unemployment projections unchanged.
Key Quotes
“While another RBA cash rate cut to 1.5% was seen as all-but a certainty after we digested this week’s Board statement, on this new low inflation outlook the markets can be expected to not only fully price –25bp in August, but could (1) price around 50/50 for a follow-up November cut to 1.25%; and going further (2) increase the odds of a cut in June or July (i.e. now a non-zero risk).
When current Deputy Governor Dr Philip Lowe assumes the Governor’s role in September he has his work cut out for him. In our view, this SoMP has a fresh slant, less focussed on coping with uncertain international conditions (FOMC, China, commodity prices, etc) and is far more focused on the structural changes underway within the domestic economy, i.e. employment dynamics, the impact on wages growth, and the subsequent dampening influence on inflation. Dr Lowe has a long, rich history of constructing and analysing underlying inflation, and one of many reasons he was perfect for the role as Governor when Glenn Stevens’ contract expires.”
Key Quotes
“While another RBA cash rate cut to 1.5% was seen as all-but a certainty after we digested this week’s Board statement, on this new low inflation outlook the markets can be expected to not only fully price –25bp in August, but could (1) price around 50/50 for a follow-up November cut to 1.25%; and going further (2) increase the odds of a cut in June or July (i.e. now a non-zero risk).
When current Deputy Governor Dr Philip Lowe assumes the Governor’s role in September he has his work cut out for him. In our view, this SoMP has a fresh slant, less focussed on coping with uncertain international conditions (FOMC, China, commodity prices, etc) and is far more focused on the structural changes underway within the domestic economy, i.e. employment dynamics, the impact on wages growth, and the subsequent dampening influence on inflation. Dr Lowe has a long, rich history of constructing and analysing underlying inflation, and one of many reasons he was perfect for the role as Governor when Glenn Stevens’ contract expires.”