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4 May 2016
RBA to ease by another 50bps – Deutsche Bank
Research Team at Deutsche Bank, suggests that the RBA surprised many in the market with a 25bps cut in it cash rate to 1.75%.
Key Quotes
“Reacting to the move our Australian team argues that the RBA will need to rely quite heavily on a lower exchange rate to lift inflation. And given relatively limited exchange rate pass-through they argue that returning inflation to the band over the next few years is likely to ultimately require the market to conclude the cash rate is heading towards (indeed below) the Fed Funds rate.
As a result they now expect the RBA to ease by another 50bps, taking the cash rate to 1.25% on a one year horizon (they nominate 25bps cuts in August 2016 and May 2017 as a possible profile). They add that further easing beyond that point could well be required depending on the actions of other central banks.
Australia also released its Federal Budget yesterday. The Treasury forecast a deficit of $37.1bn (2.2% of GDP) in 2016-17 and $26.1bn in 2017-18 (1.4% of GDP). A surplus of 0.2% of GDP is forecast in 2020-21. Net debt is forecast to peak at 19.2% of GDP in 2017-18. Our team comment that overall the budget figuring over the next few years appears reasonable from a quick top-down perspective.
New policy decisions have been broadly offset by new saving measures over coming years. They think Treasury’s forecasts for real GDP growth over coming years seem broadly reasonable too, with growth of 2½% in 2016-17 and 3% in 2017-18. Finally, we note that earlier in the day Australia reported a 3.7% mom rise in dwelling approvals in March but they were still down 6.5% yoy.”
Key Quotes
“Reacting to the move our Australian team argues that the RBA will need to rely quite heavily on a lower exchange rate to lift inflation. And given relatively limited exchange rate pass-through they argue that returning inflation to the band over the next few years is likely to ultimately require the market to conclude the cash rate is heading towards (indeed below) the Fed Funds rate.
As a result they now expect the RBA to ease by another 50bps, taking the cash rate to 1.25% on a one year horizon (they nominate 25bps cuts in August 2016 and May 2017 as a possible profile). They add that further easing beyond that point could well be required depending on the actions of other central banks.
Australia also released its Federal Budget yesterday. The Treasury forecast a deficit of $37.1bn (2.2% of GDP) in 2016-17 and $26.1bn in 2017-18 (1.4% of GDP). A surplus of 0.2% of GDP is forecast in 2020-21. Net debt is forecast to peak at 19.2% of GDP in 2017-18. Our team comment that overall the budget figuring over the next few years appears reasonable from a quick top-down perspective.
New policy decisions have been broadly offset by new saving measures over coming years. They think Treasury’s forecasts for real GDP growth over coming years seem broadly reasonable too, with growth of 2½% in 2016-17 and 3% in 2017-18. Finally, we note that earlier in the day Australia reported a 3.7% mom rise in dwelling approvals in March but they were still down 6.5% yoy.”