At the Reserve Bank Board’s April meeting, it kept official interest rates on hold at 2.25%.
Here’s what Macquarie Bank had to say about the decision:
Market commentators were surprised that the RBA did not cut in March, following February’s historic rate cut.
It would appear the RBA continues to assess the overall impact of February’s cut, and is waiting for additional economic data to be released later this month, such as inflation, before taking any further policy action.
Subdued economic data
Today’s decision may have been influenced by more subdued economic data, such as a modest reduction in unemployment from 6.4% to 6.3% in March, consumer confidence retreating after February’s large gain and by the falling oil price, which will be positive for consumers and industry in the medium-term.
With recent housing approvals rising to an annualised 203,000, a cyclical high and above underlying demand, the RBA may be anticipating that actual building commencements will bring on more supply and cool the recent spikes in house prices.
Australian economy growing below trend
The minutes from last month’s RBA decision highlighted the outlook for global growth had not changed, that the Australian economy continues to grow below trend and would continue to operate with spare capacity, resulting in subdued labour demand.
There had also been indications that business investment could remain soft for longer than had been previously expected.
The RBA commented again that the Australian currency was above fundamental value, particularly in light of falling commodity prices.
Further rate cuts forecasted
Macquarie’s economists now forecast two more rate cuts this year, taking the official cash rate to 1.75%. We believe a rate cut in May is possible, however more likely in August and November.
This is based on the RBA’s growth outlook and the combination of weak commodity prices, the rising unemployment rate, soft consumer spending and the need for a lower currency to help re-balance the economy.
The next RBA board meeting will be held on Tuesday 5 May.
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