At today’s meeting, the RBA decided to leave the cash rate unchanged at 2.00%, following the cut at the last meeting. As a result, the Australian dollar rose slightly with shares trading lower.

No real surprises from the RBA with this decision given their preference for allowing time for rate cuts to work their way through the economy. The RBA ended their statement with guidance that any changes to the cash rate ahead will be data dependent, not wanting to indicate their bias prior to the next meeting.

We believe the RBA remains on an easing bias given weakening economic conditions (low wages growth, falling inflation, sharply falling business capital expenditure, subdued public spending) and a stubbornly high Australian dollar.

The RBA’s statement was very similar to last month’s. They noted some increases in bond yields globally, but that long term borrowing rates still remained remarkably low. They also highlighted that weakness is likely to persist in business capital expenditure in both the mining and non-mining sectors, which will result in a drag on private demand. This is likely to further play out in the second half of this year.

The RBA reiterated the work they’re doing with other regulators to contain risks arising in the housing market (Sydney and Melbourne) as well as reiterating the importance of the Australian dollar falling further to assist the economy.

Barring any positive changes to data over the coming months, we expect the RBA to continue an easing bias with another cut to the cash rate possible at the July or August meeting.

 

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