RBA could now move into a ‘wait-and-see’ mode – UOB

Economist Lee Sue Ann and Senior FX Strategist Peter Chia at UOB Group assessed the recent decision by the RBA to cut interest rates.

Key Quotes

“The new record-low OCR of 0.75% is the third cut this year as the central bank tries to push the unemployment rate lower, and inflation and wage growth higher. RBA Governor Phillip Lowe explained that although the “outlook for the global economy remains reasonable, the risks are tilted to the downside”, with the US–China trade dispute affecting global trade and businesses scaling back their investment. Lowe added that it was “reasonable to expect that an extended period of low interest rates will be required”, and that the RBA is “prepared to ease monetary policy further”.

“We had thought the RBA would prefer more time to evaluate the impact of the rate cuts in June and July, and wait out for further developments on the economic front. However, Australia’s labour market had weakened slightly in August”.

“By the next RBA meeting on 5 November, the RBA will have received more data on inflation (3Q19 data will be due on 30 October), as well as additional labour market information (September data will be due on 17 October)”.

“We are still of the view that the RBA is on a “wait-and-see” approach… we are now revising our forecast for a steady OCR of 0.75% for the rest of this year. That said, further easing cannot be ruled out. We will, as such, keep watch on global trade tensions; whilst on the domestic front, soft consumer spending, undershooting inflation, and mediocre wages, will be factors that may prompt us to revise our view further ahead”.