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Australia: Not yet, but rate cut forecasted in 4Q15 - ING

FXStreet (Córdoba) - The Reserve Bank of Australia left the policy rate unchanged, but also left an easing bias in place. According to James Knightley, analyst at ING, they continue to have a forecast of a 4Q15 rate cut, although this is perhaps looking less likely.

Key Quotes

“We had been thinking that the RBA may have opted to loosen policy further earlier today, but in the end they kept the policy rate unchanged at 2%, suggesting that “the prospects for an improvement in economic conditions had firmed a little”. The statement also highlighted the “somewhat stronger growth in employment and a steady rate of unemployment”. Nonetheless, the RBA reiterated the view that “the economy is likely to have a degree of spare capacity for some time yet”. While inflation is likely to be broadly in line with target over coming years, the forecast is “a little lower than earlier expected”. Consequently, “the outlook for inflation may afford scope for further easing of policy”.

“As such, we see an ongoing implied easing bias and as with all other central banks, the decision will come down to the data flow. We continue to have a forecast of a 4Q15 rate cut, although this is perhaps looking less likely – the market is pricing in around a 30% chance of this with a 25bp move fully priced for May”.

“The RBA may well be hoping that a Federal Reserve rate hike does most of the work for it (by raising US rates, allowing further weakening AUD versus USD) given relative strength in the domestic housing market and concerns as to what additional stimulus would mean for it”.

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