2 Aug 2016
At today’s meeting, the RBA decided to cut the cash rate by 0.25% to 1.50%, hardly surprising given recent inflation data and the high Australian dollar.
Post the announcement, equity markets bounced then fell away again following falls earlier in the day, whilst the Aussie dollar has edged lower.
The decision comes as no surprise given the RBA’s ongoing easing rhetoric, with inflation for the last two quarters well below the RBA’s preferred inflation band of 2-3%, and an uncomfortably high Australian dollar against a falling Euro and Yen, and a US dollar which won’t move higher until the Fed starts raising rates.
The statement was very similar to that issued last month. The RBA refrained from talking down the dollar, which was to be expected given the dollar can only really move downward if other currencies stop falling, or push higher in the case of the US dollar. They did single out that they were now more comfortable with lower rates not exacerbating risks in the housing market given trends in recent data.
The announcement explicitly left out forward guidance on future rate moves. We continue to believe that the RBA is operating with an easing bias given current data and market conditions, but will most likely wait to see how today’s cut permeates through the economy.