Uren says no RBA rate cut in May

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The Australian’s Uren writes that the RBA is unlikely to cut rates despite the recent run of softer data. This is basically the same as my view.

The financial markets’ confident prediction of a rate cut at tomorrow’s Reserve Bank board meeting is unlikely to be fulfilled.
Although the latest data has been weak both in Australia and overseas, the Reserve Bank still believes its rate cuts of the past year are working their way through the economy, while its staff would have spent last week debating whether they should raise, not lower, their growth forecast.

With a cash rate of 3 per cent, the Reserve Bank believes it has rates at a clearly stimulatory setting. A cut now would look like fine-tuning monetary policy settings in response to ambiguous data.


  1. No cut in May is the most likely outcome, but what about the statement? More / less dovish?

    “Whether they should raise, not lower, their growth forecast” Based on what data?

    1. 12bps just now — came off a bps or two on the stonking real retail number. They have never cut with only 12bps priced the day before. First time for everything i guess, but …

      1. re retail , it’s clear there was much weakness in retail just before Christmas with people waiting for deals in Jan / Feb. March shows we are back to “normal”, i.e. last year kind of retail growth. Consumer confidence is matching this outcome, weakening as of recently. The ANZ job numbers are what? We are back to 2006 levels, and 50% below pre-GFC peak, while we should be at the top of the economic cycle right now? Last year rate cuts definitely pushed bank shares up to new record highs and boosted activity, but I am not so sure they are sticking and getting traction right now.

        1. ssec, I tend to agree that bank shares have run hard and need to see some follow through in credit growth soon – ie this year – as does the economy more generally.

          1. It’s just a dividend play and their earning growth is coming from repricing debt, but I do not see much upside from these levels, as I do not see more credit growth to happen anytime soon. However I am not selling as I do like the franked dividends.

            And I am also still short AUD. My reasoning being: if more cuts are coming, the AUD will be under pressure, if no more cuts, I think AUD will be under pressure anyway as the economy will come under pressure from the end of the mining boom and not enough activity in housing will be achieved to replace it. But we also have every one else expanding the money supply, so that is the balance.

    1. Do not waste your time on The Kouk if you want to make money and understand RBA decisions. He’s too political and biased. And that’s a big difference from RA. RA might be “right of centre” as you describe him, but when talking about monetary policy he is fully focused on the hard facts and economic data.

    2. I am mates with Andrew Norton (Grattan Institute), who now writes almost exclusively on higher education and campaign finance. He is always extremely well-considered. I also like Stephen Kirchner on macro, although as he’s now editor of the CIS’s Policy mag, he doesn’t blog much nowadays.

  2. Thanks ssec,

    however so is the Kouk when he discusses such topics.
    The blogs are to read and understand topics not to make money.

    That is why RA’s blog is so good!

  3. As Bernanke said, the only reliable guides to the stance of policy are inflation and nominal GDP. Rates are only mildly stimulatory at the moment. It’s the loosening in the US, Japan and now Europe that I believe is doing the work. Does anyone know if RP Data is showing bigger increases at the top end than at the middle/lower ends? If so, that would go towards showing that it’s the offshore loosening working through the equity market wealth effect that is doing the heavy lifting.

    1. Actually commodities are no longer doing that well, definitely not as good as during QE1 and QE2 and mining shares are quite depressed. China is weighting this time around. It’s the financials that got us above 5000 in Australia thanks to the RBA cutting. If the RBA did not cut we would not be where we are. The problem is that when other central banks ease policy, that puts upside pressure on the AUD and if not followed by higher commodity prices, higher currency puts a break on our market.

  4. Big retail volumes after Christmas, on post-Christmas discounts, but prices are down and FINALLY we start to see SOME of the benefits of a higher currency come through to consumers:


    This is a lot of volume and demand carried forward. The same as cars that were running hot up to April: http://www.afr.com/p/national/holden_hit_hardest_as_car_sales_4miGC80DPoZXg8zkOoDeMJ

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