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RBA to keep policy steady until mid 2015 - Nomura

FXStreet (Bali) - Charles St-Arnaud, FX Strategist at Nomura, does not expects the RBA to consider any changes to its policy stance this week, adding that the CB will keep monetary policy unchanged until mid-2015.

Key Quotes

The Reserve Bank of Australia (RBA) will hold its next monetary policy meeting on 5 November. At its board meeting in October, the RBA left its policy rate unchanged at 2.50% and stated that "monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”. The central bank also reiterated that the currency remains too strong and, as a result, "is offering less assistance than would normally be expected in achieving balanced growth in the economy".

Indicators received since the September meeting have been mixed. As a result, we expect the RBA to keep it policy rate unchanged at next week‟s meeting. We believe that the RBA is likely to take note of the heightened uncertainty coming from the recent market turbulence and the weaker global outlook.

We believe that the RBA is also likely to reiterate that AUD “remains high by historical standards, particularly given the further declines in key commodity prices in recent months” and that “It is offering less assistance than would normally be expected in achieving balanced growth in the economy”.

We think the statement will continue to suggest that the RBA is not considering any changes to its policy stance and will very likely reiterate that “the most prudent course is likely to be a period of stability in interest rates”. We continue to believe that the RBA will keep monetary policy unchanged until mid-2015.

In addition, the RBA will be publishing their Statement on Monetary Policy on 8 August. We believe that the RBA could revise its growth outlook slightly lower to take into account the impact of the negative terms of trade coming from weaker commodity prices.

On inflation, we believe that, while lower oil prices should push inflation lower, the impact from a weaker currency on import goods is likely to lead to an unchanged outlook for both headline and underlying inflation, but risk are on the downside.

With the FOMC clearly signalling that policy normalization remains on track and commodity prices remaining weak, we continue to believe that AUD/USD should drift lower in coming month, as the currency continues to realign to weaker commodity prices

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