Back
1 Jul 2014
RBA to remain firmly neutral, first rate hike H1 2015 - Nomura
FXStreet (Bali) - According to Charles St-Arnaud and Martin Whetton, Strategists at Nomura, the RBA is expected to keep monetary policy unchanged today, while still calling for the first hike to occur in H1 2015.
Key Quotes
The Reserve Bank of Australia (RBA) will hold its next monetary policy meeting on 1 July. At its last board meeting in April, the RBA left its policy rate unchanged at 2.50% and restated that "monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates,” which is indicative of a firmly neutral policy stance.
However, what caught our attention was the slight increase in the level of discomfort regarding the currency, by adding the last part to the following statement: “The exchange rate remains high by historical standards, particularly given the further decline in commodity prices”. With AUD slightly higher, hovering around 0.94 in recent weeks, we think it likely that the RBA will reiterate its discomfort about the level of the currency and see a risk that the Bank could again increase its level of concern.
While growth in Q1 was stronger than expected, other indicators have been mixed. As a result, we believe that the RBA's policy stance is firmly neutral and expect the central bank to leave monetary policy unchanged at this week's meeting. Moreover, we think the statement will continue to suggest that the RBA is not considering any changes to its policy stance and will very likely reiterate that “the most prudent course is likely to be a period of stability in interest rates”. Moreover, based on recent comments in the minutes of the June policy meeting, we think the RBA may make a reference to the likely drag on the economy from the budget.
We continue to believe that the RBA will keep monetary policy unchanged this year and that the first hike will occur in H1 2015.
Key Quotes
The Reserve Bank of Australia (RBA) will hold its next monetary policy meeting on 1 July. At its last board meeting in April, the RBA left its policy rate unchanged at 2.50% and restated that "monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates,” which is indicative of a firmly neutral policy stance.
However, what caught our attention was the slight increase in the level of discomfort regarding the currency, by adding the last part to the following statement: “The exchange rate remains high by historical standards, particularly given the further decline in commodity prices”. With AUD slightly higher, hovering around 0.94 in recent weeks, we think it likely that the RBA will reiterate its discomfort about the level of the currency and see a risk that the Bank could again increase its level of concern.
While growth in Q1 was stronger than expected, other indicators have been mixed. As a result, we believe that the RBA's policy stance is firmly neutral and expect the central bank to leave monetary policy unchanged at this week's meeting. Moreover, we think the statement will continue to suggest that the RBA is not considering any changes to its policy stance and will very likely reiterate that “the most prudent course is likely to be a period of stability in interest rates”. Moreover, based on recent comments in the minutes of the June policy meeting, we think the RBA may make a reference to the likely drag on the economy from the budget.
We continue to believe that the RBA will keep monetary policy unchanged this year and that the first hike will occur in H1 2015.