RBA: No fireworks offered - TDS

Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities, notes that as widely expected, the RBA left the cash rate at 1.5%. The RBA's last adjustment to the cash rate was -25bp in August 2016.

Key Quotes

“The statement was similar to July, and as is usually the case each quarter, adds some colour on the Bank's outlook ahead of Friday's Statement on Monetary Policy.”

“A new observation was "The drought has led to difficult conditions in parts of the farm sector." State and Federal assistance has already been offered to help this sector.”

“The lift in funding costs continues to be downplayed by the RBA, this time noting that the average mortgage rate is lower than a year ago.”

“The Bank's outlook for growth appears unchanged: "GDP growth is expected to average a bit above 3 per cent in 2018 and 2019". There appears to be some modification of the inflation profile, where "The central forecast is for inflation to be higher in 2019 and 2020 ... and once-off declines in some administered prices in Q3 are expected to result in headline inflation in 2018 being a little lower".”

“There was no reference to the outlook for underlying inflation, and we expect the RBA to leave its core inflation profile flat at 2%/y this year and next. We expect base effects to lift Jun qtr GDP from 2.75% to 3%/y, unchanged otherwise.”

“OIS remains dead flat, barely ~30% priced for +25bp by May 2019. This is consistent with RBA Governor Lowe's mantra that the next move is up, but not for some time.”

“Consensus expects the cash rate to remain unchanged at 1.5% through to Q2 2019, and implies no change to these statements for quite some time. We still tilt towards a more hawkish tone heading into 2019, as inflation and wages growth 'off the floor' does not require the cash rate to remain at record low levels.”