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AUD: RBA keeps rates unchanged, downside risks elevated - ANZ

FXStreet (Delhi) – Felicity Emmett, Co-Head of Australian Economics at ANZ, notes that in today’s policy meet, RBA left rates unchanged and said that the downside risks to the international outlook has increased with recent data suggesting further downside momentum to growth will prompt the RBA for future rate cuts.

Key Quotes

“Extending the comment about strongly rising house prices to now include Melbourne: “Dwelling prices continue to rise strongly in Sydney and Melbourne”.”

“Notwithstanding strongly rising prices, the Bank clearly feels that macro prudential measures announced last December are now having an effect, noting that “regulatory measures are helping to contain risks that may arise from the housing market”.”

“A slightly more downbeat comment on markets noting that “the functioning of financial markets generally has not, to date, been impaired”, rather than “other financial markets have been relatively stable”.”

“Clearly, the downside risks to the international outlook have increased, and the recent economic data do suggest some slowdown in momentum offshore, but it’s too early for the Bank to have much clarity on how those risks are playing out. Domestically though, the data continue to suggest that the economy is still trudging along at a sub-trend, but not terribly weak, pace.”

“Our own view is that this is likely to continue for a while, but next year’s growth could deteriorate as the boost from housing starts to fade, and the impact of the lower AUD on services trade lessens. With the loss of those two key supports, growth is likely to be insufficient to prevent the unemployment rate rising from an already elevated rate – something we think the RBA would feel particularly uncomfortable about. It is then that the RBA will be prompted to cut rates to support growth, and we continue to expect 25bp rate cuts at the February and May meetings next year.”

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