The decision to maintain the cash rate at 3.5% was expected and our focus is on the actual outlook statement issued by the RBA. There has been a shift over the past few weeks not just in the economic data but also in the way consensus estimates of more cuts have been rearranged.
One of the main things we have noted is those proposing an aggressive cutting agenda have pushed back their assumptions into 2013, no doubt impacted by last month’s solid jobs numbers and the GDP numbers which blew consensus estimates away.
We think today’s statement is important in that it signals a hold in strategy. The RBA wants to sit back and evaluate not just the benefits of recent cuts but any potential consequences and costs to the economy.
Inflation is under control for now but there is a direct benefit flowing through certain parts of the economy, like real estate for example. Yesterday’s price growth numbers and today’s building approvals boost are a direct result of recent cuts and governments getting their act together on proactive policies.
Bottom line: For now is seems like there is enough stimulus working its way through the economy with carbon tax compensation payments going to households in recent weeks, lower oil prices and tax cuts in the new financial year.
We think consensus estimates will continue to change over the next few days, with aggressive cuts being hosed back. Analysts will probably increase their bottom of the cycle rate call on the back of the RBA’s comments today and that will be a positive for the A$ which was last trading at 102.7 US cents.
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