RBA: Markets price a roughly flat cash rate to end-2017 - Westpac

Sean Callow, Research Analyst at Westpac, explains that as expected, the RBA held the cash rate at 1.5% in April and maintained a neutral outlook in its statement while markets price a roughly flat cash rate to end-2017, with the recent flirtation with a rate rise slipping into early 2018.

Key Quotes

“However, there were some notable changes from March. The commentary around the domestic economy was somewhat less upbeat. The economy is described as seeing only “ongoing moderate growth.” In particular the commentary around the labour market is downbeat. The RBA noted that some indicators of conditions in the labour market have softened recently; the unemployment rate has moved a little higher and employment growth is modest.”

“The other main change was on the less dovish side, with increased concern over “the risks associated with high and rising levels of indebtedness” due to housing.”

“These concerns are effectively offsetting for the cash rate outlook. Westpac’s base case remains that the cash rate remains at 1.5% throughout both 2017 and 2018. We still see risks to this view skewed more to a rate cut than to a hike, as growth in 2018 could disappoint.”