No sign RBA is predisposed to cut rates soon: Macquarie’s Brian Redican

Remarks made by RBA governor Glenn Stevens in his monetary policy decision statement today after the central bank kept the cash rate on hold suggest the central bank is not predisposed to cutting the cash rate again soon, says Brian Redican, senior economist at Macquarie Bank.

“As a result of the sequence of earlier decisions, there has been a material easing in monetary policy over the past six months. At today's meeting, the board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate,” Stevens said in his statement.

Redican says there is “certainly no hint that the RBA was eagerly awaiting the upcoming CPI data (out on July 25) to confirm that inflation was low or that it would be closely monitoring international developments to ensure that the stance of policy remained appropriate”.

Ahead of the rate decision, 18 out of 28 economists polled by Bloomberg had forecast a rate cut at the next RBA meeting on August 7.

But Redican says it is Macquarie’s view that “the popularity of an August rate cut with economists could just be an artefact of recent history”.

“The market has had very aggressive rate cuts priced in over 2012 and the RBA's decision to cut rates by 50bps in May was perceived as confirming that trajectory.

“Suddenly, the debate was not whether the RBA would cut again in June, but whether they would cut by 25bps or 50bps (and possibly even more). And it was during this period that most people pencilled in an August rate cut.

“Since then, the RBA governor has delivered markets a reality check. The minutes of the June board meeting revealed that it was a toss of the coin whether the RBA would cut at all in June. And the justification for cutting in June – taking out some insurance against the risk of a European implosion – turned out to be a policy loosening for something that failed to materialise,” Redican says.

“That doesn't mean that such a move was a mistake. But presumably it does raise the bar for further rate cuts,” says Redican.