RBA stays on hold, signals on hold in December as well – Westpac

Bill Evans, analyst at Westpac, points out that in today’s RBA meeting, the language in the Governor’s Statement points to rates remaining on hold in December, but more stimulus is required and that should come in February next year.

Key Quotes

“As expected, the Reserve Bank Board decided to leave the cash rate unchanged at 0.75% at its November Board meeting.”

“While this result was what was widely expected today, markets had given a 50% probability of a rate cut following the move in October. Westpac was never convinced of that prospect and had pointed to the fact that central banks usually make very strong cases for a decision and markets can over interpret that sentiment.”

“For us, the most important aspect of the Governor’s November Decision Statement was the signalling around prospects for a cut in December. It has always been our view that policy would be unchanged in November and December, but when market pricing reached 50% for November, December pricing was around 90%.”

“The growth forecast for 2019 has been lowered from 2½ per cent to 2¼ per cent. When the 2½ per cent forecast was made, the RBA was unaware of the “softish” 0.5% GDP growth for the June quarter. With the first half of 2019 totalling 1 per cent, the 2¼ per cent forecast implies two quarters of around 0.6% growth in the second half of 2019. Westpac expects 0.5% in the September quarter.”