RBA's optimism means the burden will fall on Q4 GDP – ANZ
Following the upbeat market reaction to the RBA’s interest rate change, actually no change in the benchmark interest rate of 0.75%, analysts at the Australia and New Zealand Banking Group (ANZ) anticipate the Q4 GDP to portray the burden of RBA’s policies.
The Bank remains upbeat on the domestic economy, more than we and perhaps the markets were anticipating. We thought it was likely the Bank would cut its 2020 GDP forecast, but surprisingly it was left unchanged around 2.75%. The 2021 3% forecast was retained as well.
The Board expects ‘...the bushfires and the coronavirus outbreak will temporarily weigh on domestic growth’. This temporary impact and the RBA's high reluctance to cut ahead of GDP as we have noted, means a cut in March is highly unlikely (unless the coronavirus takes a turn for the worse).
The Bank is less concerned on downside risks to the global economy. In December, the Bank noted ‘risks are still tilted to the downside’. Today the Bank stated "There have been signs that the slowdown in global growth that started in 2018 is coming to an end".
In the Dec statement, the Bank said "the main domestic uncertainty continues to be the outlook for consumption". Today the Bank stated, ‘consumption growth is expected to pick up gradually’.
The Bank retains its conditional easing bias, but for now it appears content that easing so far is having its intended effect.
The RBA Governor's speech tomorrow titled 'The Year Ahead' should provide further insight into RBA thinking.
The RBA's optimism means the burden will fall on Q4 GDP to be released on March 04 to support our call for an April cut.