The forensic analysis of the RBA Board minutes for February has been undertaken and the verdict is in.
Some economists, like Annette Beacher – TD Securities Head of Asia Pacific Research – believe May is the best bet for the next RBA cut. But other economists seem to be cautiously optimistic that another cut at the March meeting is “live.”
The context of “live”, or not, is shaped by the Minutes, which revealed the RBA had the same debate in private that the market and pundits had in public about the timing of the February cut.
The Minutes showed that:
In deciding the timing of such a change, members assessed arguments for acting at this meeting or at the following meeting. On balance, they judged that moving at this meeting, which offered the opportunity of early additional communication in the forthcoming Statement on Monetary Policy, was the preferred course.
Which is why Beacher is not in the camp that says March will see another easing. Rather, Beacher thinks the “debate dilutes the urgency for a consecutive March rate cut, as the timing was down to preference, not an urgent need to deliver a surprise ‘insurance’ cut like the Bank of Canada.”
But, while this paragraph clearly makes others wary they are coming down on the side of easing.
UBS’ Scott Haslem says that, “the list of ‘uncertainties’ highlighted by the Board appeared slanted to the downside.” The Aussie dollar’s path was a key area of uncertainty. Equally he highlighted that the RBA still wasn’t sure of the, “timing of the forecast improvement in consumer and non-mining capex growth,” while it also highlighted, “the recent fall in business and consumer confidence.”
With unemployment having spiked to 6.4%, Haslem is betting on a March cut.
Likewise Westpac’s Bill Evans, who back in December forecast the February rate cut, is still holding to his call of back to back cuts. But he’s wavering a little on March and said, “these minutes, on balance, cast more doubt on a follow up move in March.”
Evans highlighted the impact of rising house prices on RBA thinking as a reason they might delay. But, he too thinks that the spike to 6.4% unemployment is enough reason to hold and call for a follow-up cut from the RBA in March.
At the moment anyway.
Felicity Emmett, ANZ’s co-Head of Australian Economics is relying on history for the March cut and expects, “another 25bp cut at the March meeting given the Bank’s historical tendency towards consecutive moves in the early part of a new cycle and its own research which suggests that the impact of one 25bp rate cut on the economy is negligible.”
Along with Haslem and Evans, Emmett notes the unemployment rate of 6.4%, a 13 year high, together with weak retail sales and, “no signs of a boost to confidence from the rate cut in the weekly consumer sentiment series,” as fundamental reasons for the March cut.
So a March RBA rate cut is live but far from certain.