RBA now seen hiking rates in May 2020 post-SoMP – TDS

Analysts at TD Securities (TDS) now push back an RBA rate hike to 1.75% from November 2019 to May 2020 after the Australian central bank slashed the growth forecasts in its quarterly Statement of Monetary Policy (SoMP).

Key Quotes:

“The RBA Statement on Monetary Policy provided justification for the Governor's unexpectedly downbeat speech on Wednesday. Growth wasn't just shaved down to 3%, it was slashed across the board. Trade-war-related downside risks have escalated, and the impact of the house price decline on the broader economy has morphed from "manageable" to being a downside risk to growth this year and next.

The Bank pushed back the pickup in core inflation to 2.25%/y and the decline in the unemployment rate to 4.75% as expected. The forthcoming election in May, and the potential impact on activity before and after this period, has not explicitly been incorporated into the Bank's outlook.

As the RBA has switched from glass-half-full to listing a litany of global and domestic downside risks to the economy, we drop our November hike and pencil in a 1.75% cash rate for May 2020. We attach a 33% risk of a rate cut, but this risk is expected to amortize over time as subsequent data reports support a return to trend growth and higher inflation over time.”