With last week's stronger GDP figures likely to calm fears about low inflation, the Reserve Bank of Australia will keep the official cash rate on hold at 1.75 per cent tomorrow, says HSBC.
In an RBA Observer note on Friday, HSBC chief economist Paul Bloxham pointed to the "upside surprise" of last week's first-quarter GDP figures, which increased by a stronger-than-expected 3.1 per cent year-on-year.
The ASX 30-Day Interbank Cash Rate Futures June 2016 contract was pricing in a 95 per cent chance of 'no change' to the cash rate on Friday.
"The stronger GDP, combined with the signs of continued modest improvement in the labour market, are likely to keep the RBA from considering a cut in June or July," Mr Bloxham said.
Given that the "driving factor" behind last month's cut to 1.75 per cent was the "surprisingly weak" first-quarter CPI print, the RBA will need to see the second-quarter CPI figures (due to be released in July) before it considers a further cut to 1.5 per cent, he said.
While HSBC's 'central case' is an RBA cut to 1.5 per cent following the second-quarter CPI print, increasingly hawkish commentary from the US Federal Reserve is a risk to the bank's forecast, Mr Bloxham said.
An improving US economy and a more aggressive Federal Reserve mean the US market is pricing in a 55 per cent likelihood of a Federal Reserve rate increase by July, he said.
"A key result of the more hawkish Fed has been a depreciation of the AUD, which has fallen from US$0.78 in mid-April to around US$0.72 recently," Mr Bloxham said.
"We see the RBA on hold in June and July, and have a cut pencilled in for August, after the Q2 CPI. However, the risk to this view is that the RBA delivers less, not more, in our view."
SUBSCRIBE TO THE IFA DAILY BULLETIN
- 21 Aug 2018Product design laws could ‘undermine’ FOFABy Tim Stewart
- 20 Aug 2018Carve-outs must be addressed before commissions: AIOFPBy Reporter
- 20 Aug 2018Professional year an opportunity for exiting advisersBy Reporter
- 20 Aug 2018IOOF creates new executive advice roleBy Reporter
- 20 Aug 2018RBA attacks ‘sales’ culture within financial servicesBy Reporter
- 20 Aug 2018Super members ‘readily’ taken advantage of: RCBy Killian Plastow
- view all