TD Securities: Here Are The Hurdles Before The RBA Will Move Monetary Policy

Matt Hodgson makes an attempt for a try but is disallowed during the Killick Cup match between the Barbarians and the Wallabies.

In the wake of today’s disastrous Q3 GDP result in Australia Annette Beacher, TD Securities head of Asia Pacific research, has released a note which tries to answer the big question most traders and economist are asking.

That is, exactly what would make the RBA shift rates – in either direction.

Here’s what she said:

Usually there are scant monetary policy implications arising from such a historical data report. However, with more analysts and the financial markets demanding more rate cuts from the RBA as national incomes slide, this weak report has more than the usual significance.

For the next move to be up for the cash rate (1) the AUD freefalls towards $US0.80, rebalancing the economy and preventing inflation from falling <2%/yr; (2) GDP starts surprising to the upside (3) the weaker AUD boosts tradable inflation despite the slide in energy prices; (4) unemployment levels decline over in H2 2015 to below 6%; and globally (5) the U.S. economic recovery spreads to other developed nations, justifying the U.S. Federal Reserve tightening from Q3 2015. In contrast, the case for a rate cut requires (1) a broad range of macro-prudential tools deployed in early 2015 to cool housing without the need for higher cash rates; (2) the RBA lowers its end-2015 core inflation projection from 2¾%/yr to closer to 2¼%/yr; (3) a rising unemployment rate beyond 6.5% by mid-2015; (4) consumer spending sinks; and globally (5) trade flows with Australia wane (volumes, not just values).

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