Back
15 May 2015
Australia's Budget lends support for easier RBA - Capital Economics
FXStreet (Bali) - Paul Dales, Chief Economist Australia/New Zealand at Capital Economics, notes that Australia's Budget lends some support to their in-house view that RBA rates may yet fall to 1.5%.
Key Quotes
"The Reserve Bank of Australia and the Treasurer appear to be playing tennis with the economy. RBA Governor Stevens has already cut interest rates to 2.0% and hinted that he would like fiscal policy to provide more help. In last week’s Budget, Treasurer Hockey ignored this plea and left the economy facing a large fiscal squeeze. The ball is now back in the RBA’s court. Although we don’t expect any immediate action, the Budget lends some support to our view that rates may yet fall to 1.5%."
"While the Budget didn’t add to the scheduled fiscal squeeze, which is something of a relief after last year’s events, it didn’t reduce the size of the expected drag either. As such, the new fiscal plans didn’t take any of the burden to support the economy off the RBA."
"The minutes of the RBA’s May policy meeting, which will be released on Tuesday, are unlikely to hint that further interest rate cuts are in the pipeline. That said, it wasn’t until the month after it cut rates in February that the Bank suggested that another cut might be needed. As such, we would warn against reading too much into what might appear to be a relatively hawkish release."
Key Quotes
"The Reserve Bank of Australia and the Treasurer appear to be playing tennis with the economy. RBA Governor Stevens has already cut interest rates to 2.0% and hinted that he would like fiscal policy to provide more help. In last week’s Budget, Treasurer Hockey ignored this plea and left the economy facing a large fiscal squeeze. The ball is now back in the RBA’s court. Although we don’t expect any immediate action, the Budget lends some support to our view that rates may yet fall to 1.5%."
"While the Budget didn’t add to the scheduled fiscal squeeze, which is something of a relief after last year’s events, it didn’t reduce the size of the expected drag either. As such, the new fiscal plans didn’t take any of the burden to support the economy off the RBA."
"The minutes of the RBA’s May policy meeting, which will be released on Tuesday, are unlikely to hint that further interest rate cuts are in the pipeline. That said, it wasn’t until the month after it cut rates in February that the Bank suggested that another cut might be needed. As such, we would warn against reading too much into what might appear to be a relatively hawkish release."