subscribe to our newsletter
Cash rate to remain steady: HSBC

Cash rate to remain steady: HSBC

The Reserve Bank of Australia will keep the official cash rate on hold at 1.75 per cent, according to HSBC – with last week’s stronger GDP figures likely to calm fears about low inflation.

In an RBA Observer note on Friday, HSBC chief economist Paul Bloxham pointed to the “upside surprise” of last week’s first-quarter GDP figures, which grew by a stronger-than-expected 3.1 per cent year-on-year.

The ASX 30-Day Interbank Cash Rate Futures June 2016 contract was pricing in a 92 per cent chance of ‘no change’ to the RBA cash rate on Friday.

“The stronger GDP, combined with the signs of continued modest improvement in the labour market, are likely to keep the RBA from considering a cut in June or July,” Mr Bloxham said.

Given that the “driving factor” behind last month’s cut in the official cash rate to 1.75 per cent was the “surprisingly weak” first-quarter CPI print, Mr Bloxham said the RBA will need to see the second-quarter CPI figures (due to be released in July) before it considers a further cut to 1.5 per cent.

Mr Bloxham said that while HSBC’s ‘central case’ is an RBA cut to 1.5 per cent following the second-quarter CPI print, increasingly hawkish commentary from the US Federal Reserve is a risk to the bank’s forecast.

An improving US economy and a more aggressive Federal Reserve mean that the US market is pricing in a 55 per cent likelihood of a Federal Reserve rate hike by July, he said.

“A key result of the more hawkish Fed has been a depreciation of the AUD, which has fallen from US$0.78 in mid-April to around US$0.72 recently,” Mr Bloxham said.

“We see the RBA on hold in June and July, and have a cut pencilled in for August, after the Q2 CPI. However, the risk to this view is that the RBA delivers less, not more, in our view.”

[Related: Australia ‘a star performer’ for economic growth]

Cash rate to remain steady: HSBC
mortgagebusiness logo

Latest News

A regional bank has revealed its full-year 2018 financial results, reporting a fall in residential mortgage settlements amid “challenging...

Former prime minister John Howard has called on the financial services royal commission to “bear in mind the stability and contribution”...

Macquarie Group has secured a stake in Investa Office Fund (IOF) months after Blackstone submitted a $3.1 billion takeover proposal. ...

FROM THE WEB

podcast

LATEST PODCAST: Cash rate to remain unchanged, corporate cops for the banks and a new type of credit card

Do you expect access to credit to get harder this year?