RBA: Rates on hold, 'gradual' progress on track - TDS

Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, points out that the RBA left the cash rate at 1.5%, extending the record run of sitting on the sidelines.

Key Quotes

“While the Bank's policy bias was unlikely to be explicitly revealed today, the RBA still sees policy targets being 'gradually' achieved despite a recent string of weak data prints. For Friday's Statement on Monetary Policy (SoMP) we see the RBA delaying achieving 2+%/y underlying inflation into 2020, rather than later this year.”

“The RBA upgraded its view on the "strong" labour market, still expecting the unemployment rate to ease to 4¾% over the projection period. An upbeat twist included the forward-looking "household income has been low ... but is expected to pick up and support household spending" (i.e. offsetting falling house prices).”

“The AUD sagged after soft retail sales, but bounced nearly 60 pip to $US0.726 on the not-dovish RBA tone. OIS has settled at 50/50 for a November 25bp cut, awaiting more data to confirm whether the RBA needs to drops its tightening bias.”

“Consensus expects the 1.5% cash rate to prevail through to mid-2020, and that may well be the case. However, after the CPI hurdle last week (core at 1¾%/y as widely expected) and a 'gradual but on target' RBA today, we look to Q4 wages on February 20 to assess the timing of the first hike (November to 1.75% is our base case).”