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3 Nov 2015
RBA maintains cash rate at 2% - Goldman Sachs
FXStreet (Delhi) – Research Team at Goldman Sachs, notes that the RBA left the cash rate unchanged at 2.00% at its October meeting ¬ this was expected by 17 of 28 local economists surveyed last Friday and was priced in financial markets as an ~40% probability just prior to the decision.
Key Quotes
"In contrast to negligible changes to the brief statement attending September's decision, there were several developments of note in today's update:
On the policy stance: The RBA has reintroduced a more explicit easing bias, by highlighting that "the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand". That said, rising optimism on the growth outlook (see below) does not signal that the RBA is about to act on this bias.
On global growth: While the RBA continues to characterise global growth as "expanding at a moderate pace", there was an implicit downgrade to the RBA's outlook for major trading partner growth via the observation of "some further softening in conditions in the Asian region". Financial market volatility was noted to have "abated somewhat" ¬ albeit only "for now".
On domestic inflation: The RBA flagged a downgrade to its inflation profile which is now expected to be "a little lower than earlier expected".
On domestic growth: The RBA signalled that its conviction on its forecast recovery in growth had "firmed a little over recent months". This assessment appears to have been driven in large part by "business surveys suggesting a gradual improvement in conditions over the past year" ¬ with few other indicators explicitly identified as having picked up and the characterisation of labour market conditions ("somewhat stronger growth in employment and a steady rate of unemployment") and credit growth ("increased a little") little changed over the past month. Of note, there was no description of trends in consumer spending, consumer sentiment, exports, public demand, or the 12bp downward revision to FY15 GDP growth announced by the ABS last Friday.
On financial conditions: The RBA acknowledged that out¬of¬cycle rate hikes by the major retail banks would "reduce support slightly" for borrowing and spending. Overall conditions were described as "still quite accommodative". Notwithstanding the mix of lower iron ore prices and a slightly higher AUD since the RBA's September meeting, the characterisation of both factors was unchanged.
On house prices: There was a downgrade of the description of house prices, with the observation that price growth in Sydney and Melbourne "has moderated of late" and "mostly subdued prices in other cities" (previously: "trends have been more varied"). The RBA continues to have faith that macroprudential efforts are containing risks in the housing market."
Key Quotes
"In contrast to negligible changes to the brief statement attending September's decision, there were several developments of note in today's update:
On the policy stance: The RBA has reintroduced a more explicit easing bias, by highlighting that "the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand". That said, rising optimism on the growth outlook (see below) does not signal that the RBA is about to act on this bias.
On global growth: While the RBA continues to characterise global growth as "expanding at a moderate pace", there was an implicit downgrade to the RBA's outlook for major trading partner growth via the observation of "some further softening in conditions in the Asian region". Financial market volatility was noted to have "abated somewhat" ¬ albeit only "for now".
On domestic inflation: The RBA flagged a downgrade to its inflation profile which is now expected to be "a little lower than earlier expected".
On domestic growth: The RBA signalled that its conviction on its forecast recovery in growth had "firmed a little over recent months". This assessment appears to have been driven in large part by "business surveys suggesting a gradual improvement in conditions over the past year" ¬ with few other indicators explicitly identified as having picked up and the characterisation of labour market conditions ("somewhat stronger growth in employment and a steady rate of unemployment") and credit growth ("increased a little") little changed over the past month. Of note, there was no description of trends in consumer spending, consumer sentiment, exports, public demand, or the 12bp downward revision to FY15 GDP growth announced by the ABS last Friday.
On financial conditions: The RBA acknowledged that out¬of¬cycle rate hikes by the major retail banks would "reduce support slightly" for borrowing and spending. Overall conditions were described as "still quite accommodative". Notwithstanding the mix of lower iron ore prices and a slightly higher AUD since the RBA's September meeting, the characterisation of both factors was unchanged.
On house prices: There was a downgrade of the description of house prices, with the observation that price growth in Sydney and Melbourne "has moderated of late" and "mostly subdued prices in other cities" (previously: "trends have been more varied"). The RBA continues to have faith that macroprudential efforts are containing risks in the housing market."