30 Jan 2015
RBA to hold rates but change guidance next week - ANZ
FXStreet (Bali) - According to Economists at ANZ, the RBA Board is expected to leave the cash rate at 2.50% next week but change the guidance by dropping ‘period of stability’ and inserting either ‘appropriate for the time being’ or ‘scope for easing’.
Key Quotes
"In line with a new easing bias we expect the tone of the statement to shift slightly, focusing on easing mortgage demand and lower inflation as a catalyst to reduce rates a little further."
"We would expect the bank to remain constructive on the medium-term economic prospects for the US, Chinese and Australian economies. A hawkish outcome would be for the Board to maintain the status quo, not only keeping rates on hold but sticking with the ‘period of stability’ guidance. This looks like the biggest shock to market expectations with the probability of a rate cut next week priced at 65% and a full 25bp cut priced for March. This is not a trivial risk, many tier one economists and others think the RBA will do nothing on rates this year."
"The dovish outcome is a cut, an easing bias and a Statement that indicates further rate cuts are likely. The market would likely price in a sub 2% cash rate for some time in 2015."
"On a probability basis we have the central case at 60% and the hawkish and dovish risks at 20% each. Depending on offshore and market developments over the next two trading sessions the market is likely to increase the probability of a Feb cut towards 75% by the time of the announcement on Tuesday."
Key Quotes
"In line with a new easing bias we expect the tone of the statement to shift slightly, focusing on easing mortgage demand and lower inflation as a catalyst to reduce rates a little further."
"We would expect the bank to remain constructive on the medium-term economic prospects for the US, Chinese and Australian economies. A hawkish outcome would be for the Board to maintain the status quo, not only keeping rates on hold but sticking with the ‘period of stability’ guidance. This looks like the biggest shock to market expectations with the probability of a rate cut next week priced at 65% and a full 25bp cut priced for March. This is not a trivial risk, many tier one economists and others think the RBA will do nothing on rates this year."
"The dovish outcome is a cut, an easing bias and a Statement that indicates further rate cuts are likely. The market would likely price in a sub 2% cash rate for some time in 2015."
"On a probability basis we have the central case at 60% and the hawkish and dovish risks at 20% each. Depending on offshore and market developments over the next two trading sessions the market is likely to increase the probability of a Feb cut towards 75% by the time of the announcement on Tuesday."