Westpac Leading Index Signals Increased Chance Of RBA Rate Cuts

Photo: Getty/Doug Pensinger

The RBA surprised the market with its doveishness yesterday, which suggested a sudden shift in its view of Australia’s economic transition and recovery.

That shift gained further support this morning with the release of the Westpac-Melbourne Institute leading index of economic growth.

Westpac said that in terms of the six month annualised deviation from trend growth, the index rose from -1.12% in April to -0.75% in May.

They added however that:

Despite an improvement over the last month, the Leading Index continues to point to a significant loss of momentum. The growth rate has now been below trend for four months in a row and is consistent with a slowdown over the second half of 2014 carrying into early 2015.

Also out this morning was April’s Conference Board leading indicator for Australia, which fell 0.1%. They noted that “the current behaviour of the composite indexes suggests that economic expansion will continue in the near term.”

That’s consistent with most pundits who aren’t questioning expansion, per se, but are now wondering about its strength.

In the Westpac release Senior Economist Matthew Hassan concludes:

On balance, the slowdown does not look to be sufficiently threatening for the RBA to shift its stance. We expect the Bank to again leave rates on hold at its July meeting and through the remainder of 2014 and the first half of 2015.

Alert but not alarmed.

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