RBA: Seeing the sunlight beyond the storms – HSBC

In view of analysts at HSBC, Cyclone Debbie certainly wasn’t a downer and neither was the wet weather as the RBA held its cash rate steady at 1.50% and no easing bias was introduced.

Key Quotes

“Although the RBA does expect that y-o-y GDP growth slowed in Q1 (when it’s published tomorrow), they stated that this ‘reflected the quarter-to-quarter variation in the growth figures’. Inclement weather has played a role here, although the RBA did not mention it specifically. Instead, they pointed to improving business conditions and capacity utilisation, which are measures that are less affected by weather than GDP.”

“The statement repeated that growth is expected to ‘increase gradually over the next couple of years to a little above 3%’ and ‘inflation is expected to increase gradually’. Despite some expected growth wobbles, we see the RBA firmly on hold in 2017 and lifting its cash rate in early 2018.”

“Implications

• The RBA remained upbeat about the outlook. While many local observers have been intently focused on what tomorrow’s GDP print could deliver, at this stage, the RBA largely brushed it off. The statement noted that although y-o-y GDP slowed in Q1, this reflects the usual ‘quarter-toquarter variation the growth figures’. Much more prominent in the post-meeting statement was the emphasis that surveyed ‘business conditions have improved and capacity utilisation has increased’. There seems to be much more faith in the readings from the business surveys than what GDP might throw up.
• This makes sense. Although the RBA did not mention the weather, it is the very wet March on the East Coast and Cyclone Debbie that are affecting a lot of the timely indicators and are expected to have weakened the Q1 GDP print (current consensus is 0.3% q-o-q). However, the business surveys and surveys of labour market conditions do a better job of stripping out the weather-related wobbles in GDP.
• The bottom line is that not much has changed for the RBA. They still see growth picking up to ‘a little above 3%’ over the next couple of years and expect that this will gradually lift inflation. They also still seem more concerned about the leverage-led housing market than about growth being too weak or inflation being too low.
• We stick by our view that the RBA has no appetite to cut its cash rate any further.”