RBA firmly on the sidelines - TDS

The RBA left the cash rate at its record low of 1.5% for its first meeting of 2018, as widely expected and the statement was a near-repeat of December, despite the meeting involving a briefing of the updated RBA staff projections, according to Annette Beacher, Chief Asia-Pacific Macro Strategist at TDS.

Key Quotes

“The balanced tone was familiar: the pickup in global growth is supporting commodity prices, and closer to home, a strong labour market and upbeat public and private investment outlook are all expected to lift wages and inflation in due course. The weak spot is the Bank's ‘usual’ concern about low income growth and high household debt generating tepid household consumption.”

“The Bank hinted that Friday's quarterly Statement on Monetary Policy will not contain forecast changes. GDP growth is expected to be "a bit above 3%" while headline inflation is expected to be "a bit above 2%". The Bank's November end-2018 forecasts were 3¼% and 2¼% respectively, hinting at no change to the outlook.”

“Despite enhanced financial market volatility and some less-than-stellar data reports earlier, the AUD appears anchored at $US0.786 (the bulk of the sell-off occurred overnight). August OIS was 50/50 for a +25bp hike yesterday, now closer to 30%.”

“There is one hurdle left to reassess our May hike base case: we need a pop in Dec qtr wages growth, released 21 February. While employment growth was very strong in 2017, wages growth has so far been slow to respond.”