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RBA Decision 3 May 2016

Discussion in 'Property Market Economics' started by MarkB, 3rd May, 2016.

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What will the RBA decide to do today?

Poll closed 3rd May, 2016.
  1. Cut by more than 25 bps (1.50% or lower)

    0 vote(s)
    0.0%
  2. Cut by 25 bps (1.75%)

    22.2%
  3. No Change (2.00%)

    72.2%
  4. Increase by 25bps or more (2.25% or more)

    5.6%
  1. MarkB

    MarkB Some guy on the internet Premium Member

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    Almost certainly this is the most interesting of all recent RBA meetings - what with -

    • rubbish CPI data
    • the strong dollar
    • concerns over China
    • questions over the Fed
    • he indebtedness of households in Australia, and
    • the state of the property markets (Syd & Melb) too.
    Oh, and today is 2016 Budget Day. And an election is only weeks away.

    All that said, imo the powder will be kept dry (for now, at least). Doesn't mean fixed rates wont fall further tho.

    ASX expectations split on today's outcome.

    And as of 30 mins ago Centrebet was showing -

    Cut 25 bps - 2.05
    Any other cut - 51
    NC - 1.70
    Up 25 bps / any other raise - 501
     
  2. MarkB

    MarkB Some guy on the internet Premium Member

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    From Bill Evans at Westpac -

    TL;DR - the RBA will be revising its medium term inflation forecasts but Westpac still expects them to fall within the desired 2-3% band. And if they do, then the Bank will not move today. If they do not, they will move. All that said, WBC is holding firm with its long held prediction that the RBA will hold rates steady.

    We expect that the Bank will also adopt a 1.75% forecast for core inflation in 2016 – sharply down from the current 2.5%. That will be a big admission for the Bank – substantially larger than our own given we were forecasting 2.1%.

    The 'no policy change' forecast for 2017 will be much more important. If, for instance, the 'no policy change' forecast was also marked down to 1.75% then there would be little choice but to cut rates on Tuesday.

    The RBA has consistently argued that inflation can drift outside the target zone in the near term as long as there is some comfort that it will move back within the zone in the medium term. Two years outside the zone would be unacceptable and would require a policy response. Consider for example the post GFC period when inflation was consistently above the top of the band but the forecasts based on slowing growth anticipated inflation moving back inside the band.

    Our own core inflation forecast for 2017 is 2.0%, down from 2.2% prior to the March quarter report. We expect the Bank is likely to favour 2.25% in 2017 – down from 2.5% in February. That will be predicated on some ongoing pass through from the AUD; and a more prominent role being played by 'output gap' analysis in the second year forecast as 'bottom up' forecasts become less reliable.

    It is crucial that the Bank maintains its GDP growth forecast of 3.0% in 2017 – above trend of 2.75% and indicating some upward pressure on inflation from a tightening of the output gap including a strengthening labour market.

    Similarly it is likely to maintain its 2.5% forecast for underlying inflation out to June 2018 with the output gap playing the dominant role in the forecasting process. Recall that the RBA is currently forecasting annual GDP growth to June 2018 of 3.5%.

    Confronted with a 'no policy change' forecast for inflation to move back within the band and above trend growth the Board is likely to hold rates steady.

    If however, the Board is advised that 'no policy change' will see underlying inflation stay outside the target zone in both 2016 AND 2017 then the Board will cut rates
     
  3. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    No change. Will happen, but not this month.

    Sportsbet were paying $1.75 for 25BP cut until today (now $1.42).
     
  4. Waterboy

    Waterboy Well-Known Member

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    No change in 2016. Unless we get surprise fugly figures in future months.
     
  5. lost nomad

    lost nomad Well-Known Member

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    No change (until after election)
     
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  6. Waterboy

    Waterboy Well-Known Member

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    One weak CPI reading is not enough.
    Latest GDP data doing good, unemployment rate is down, below expected. These 2 metrics have exceeded RBA forecasts actually.

    Unless we see material deterioration ahead in the economy and a persistently sustained Lowflation, it's gonna be on hold.

    Although of course I would not mind a rate cut personally:)
     
  7. Observer

    Observer Well-Known Member

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    And it's cut :)
     
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  8. headsonbeds

    headsonbeds Well-Known Member

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    Nice one!
     
  9. Coota9

    Coota9 Well-Known Member Premium Member

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    Odds on we don't see this flow through to investors anyway:(:(
     
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  10. MarkB

    MarkB Some guy on the internet Premium Member

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    Statement by Glenn Stevens, Governor: Monetary Policy Decision


    At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.

    The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China's growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.

    Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.

    Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

    In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.

    Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.

    Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

    In reaching today's decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.

    Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.
     
  11. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    It will be interesting to see if any gets passed on.
     
  12. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Whoo hoo!! :)
    I asked for the cut and got it :):p:D:cool:
     
    Last edited: 3rd May, 2016
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  13. Kangabanga

    Kangabanga Well-Known Member

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    good one gockie, i am one of the four here that voted for a cut too on the poll.

    It's election year, whatever makes the masses happy :D
     
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  14. EN710

    EN710 Well-Known Member

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    NAB announced that they would pass it in full... got no idea which loan type tho
     
  15. Kangabanga

    Kangabanga Well-Known Member

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    wouldnt be surprised that it doesnt get passed on much, the banks have reported pretty bad results due to defaults from energy sector loans. That has probably only just begun.

    the lower rates will just help banks with their PROFITS...
     
  16. Observer

    Observer Well-Known Member

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    That would be nice (getting a loan with them).
     
  17. HD_ACE

    HD_ACE Game-Changer Premium Member

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  18. lost nomad

    lost nomad Well-Known Member

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    Didn't expect that!
     
  19. JDP1

    JDP1 Well-Known Member

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    The million dollar question is now which city will benefit the most from this cut?
    I suspect sydney and brisbane.
     
  20. meme plecko

    meme plecko Well-Known Member

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    Nah, Davoren Park I reckon ;)
     
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