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The bank said Mr Stevens indicated in a recent speech that the cash rate will remain on hold today and has dismissed discussion regarding further easing in February.
“When asked about whether he was ‘still content with a two per cent cash rate’ or whether the central bank was ‘going to surprise us all again next February’, he said that, “February is three months away, we’ve got Christmas, we should just chill out, come back, and see what the data says,” HSBC said.
The bank argued that while there is scope to cut rates, the RBA remains reluctant for an array of reasons.
“With growth running below its trend pace, the unemployment rate still well above its full employment level and underlying inflation at the lower edge of the target band, the RBA has scope to cut interest rates further,” HSBC said.
However, HSBC said the central bank sees the costs of a further cut outweighing the benefits. Macro-economic risks, stemming from the US and China in particular, are also acting as a deterrent.
HSBC said that if the US Federal Reserve raises rates in the coming months, a noticeable fall in the Australian dollar could help to lift inflation. Conversely, if the Fed’s commentary remains “dovish” and it does not act, the Australian dollar could rise and therefore put further downward pressure on inflation.
In addition, another risk is what the slowdown in China means for commodity prices.
“The RBA has been content with the level of the [Australian dollar] recently, partly because it had fallen in line with commodity prices and partly because there are clear signs that the lower [Australian dollar] is lifting growth,” HSBC said.
“If commodity prices were to fall further and the [Australian dollar] rose, this could squeeze local income and become a concern for the RBA.”
HSBC also pointed out that there will be a “swathe” of local economic data for Australia before February. This includes third-quarter GDP data – expected to show solid growth of around 2.5 per cent year-on-year – and labour market figures for November.
“Another critical piece of information ahead of the February RBA meeting will be Q4 [consumer price index (CPI)] print, which is due on 27 January 2016,” the bank said.
“A low CPI print could encourage the RBA to cut further, although the central bank’s own forecasts already anticipate underlying inflation of 2.0 per cent year-on-year, so it would take a weak result to surprise the RBA to the downside.”
AMP chief economist Shane Oliver said while the RBA will likely keep rates on hold, further easing is needed.
“I lean to the view that further help for the economy will still be needed in the form of another easing at some point as the boost to growth from the housing sector runs its course and non-mining investment remains poor,” he said.
[Related: Low rates ‘the new normal’, says Kolenda]