RBA: Pause and neutral bias smashes the doves - TDS

TD Securities analysts note that the RBA delivered a hawkish combination of on hold at 1.5% and a repeat of its neutral bias.

Key Quotes

“We question the Bank's optimistic forecasts, to be spelled out in Friday's SoMP. The RBA claims that underlying inflation "is still expected to be 1¾% this year and 2% in 2020" and that "GDP growth is still expected to be 2¾% this year and next". These are little different from the February projections despite material disappointment in GDP and CPI outcomes since then.”

“After digesting the RBA's words and deeds, we have to respect the RBA's endless patience and "reluctant cutter" stance, and we look for the first cut in August follow by another cut in November to 1%. The RBA claimed "... the Board will be paying close attention to developments in the labour market at its upcoming meetings". A cut in June/July then requires an immediate drastic deterioration in labour market fundamentals, which we do not expect so soon.”

“While we still expect a monetary policy response to weaker-for-longer inflation, we remain of the view that fiscal policy is more likely to immediately boost spending and provoke businesses into investing and employing.”