30 Jul 2013
Australian government seeks RBA support, Aug rate cut in the horizon?
FXstreet.com (Barcelona) - Ahead of the RBA interest rate decision next August 6th, the Australian government continues to communicate to the market that tough budget cuts are to be expected, with economists predicting it will slowdown growth.
In the Australian press this morning, the AFR reports that Treasurer Chris Bowen said the Labor Dpt would be “working with the Reserve Bank” to create more jobs and stimulate growth in the economy, with “tough decisions” eyed.
The AFR economics correspondent Jacob Greber, who runs the story, underlines that while it is important to preserve the RBA’s independence, the comments suggests Canberra is looking to the RBA for assistance to support the economy.
The story follows Reserve Bank board member John Edwards, who cited by the AFR on Monday, sounded concern about the government implementing sizeable budget changes as the economy may suffer undesired headwinds. As NAB reports: "The RBA external board member warned the economy is not strong enough to withstand fiscal tightening worth more than 0.4% of GDP."
AFR also gives a heads up on a pessimistic outlook published by Deloitte Access Economics, which concludes that "the value of Australia’s biggest resources investment projects dropped for a 2nd straight quarter – first sustained fall in a decade, adding that "the past few months could be seen as somewhat of a turning point for the Australian economy,” Deloitte said.
High chances for a rate cut in August
At the moment, the overnight index Swap market is pricing in a 79% chance of a 25 basis point cut in the cash rate at the August 6 meeting.
HSBC Strategists are calling for a 25bp rate cut. JPMorgan Australia chief economist Stephen Walters, quoted by the AFR, said "if they’re going to have to make further cuts, the burden on either monetary policy or the currency gets larger", adding that "the key question is whether the RBA thinks there’s enough policy stimulus in the pipeline already and whether the significant fall in the currency is enough.”
Greg Gibbs, FX Strategist at RBS, narrowly expects the RBA to cut in August too, arguing that "a decision to cut may get some additional supporters since policy will have been on hold for three months and, if inflation is low, another incremental cut could add some additional support to the economy that is still in the early stages of transitioning from a mining boom, and the currency is still regarded as too high."
In the Australian press this morning, the AFR reports that Treasurer Chris Bowen said the Labor Dpt would be “working with the Reserve Bank” to create more jobs and stimulate growth in the economy, with “tough decisions” eyed.
The AFR economics correspondent Jacob Greber, who runs the story, underlines that while it is important to preserve the RBA’s independence, the comments suggests Canberra is looking to the RBA for assistance to support the economy.
The story follows Reserve Bank board member John Edwards, who cited by the AFR on Monday, sounded concern about the government implementing sizeable budget changes as the economy may suffer undesired headwinds. As NAB reports: "The RBA external board member warned the economy is not strong enough to withstand fiscal tightening worth more than 0.4% of GDP."
AFR also gives a heads up on a pessimistic outlook published by Deloitte Access Economics, which concludes that "the value of Australia’s biggest resources investment projects dropped for a 2nd straight quarter – first sustained fall in a decade, adding that "the past few months could be seen as somewhat of a turning point for the Australian economy,” Deloitte said.
High chances for a rate cut in August
At the moment, the overnight index Swap market is pricing in a 79% chance of a 25 basis point cut in the cash rate at the August 6 meeting.
HSBC Strategists are calling for a 25bp rate cut. JPMorgan Australia chief economist Stephen Walters, quoted by the AFR, said "if they’re going to have to make further cuts, the burden on either monetary policy or the currency gets larger", adding that "the key question is whether the RBA thinks there’s enough policy stimulus in the pipeline already and whether the significant fall in the currency is enough.”
Greg Gibbs, FX Strategist at RBS, narrowly expects the RBA to cut in August too, arguing that "a decision to cut may get some additional supporters since policy will have been on hold for three months and, if inflation is low, another incremental cut could add some additional support to the economy that is still in the early stages of transitioning from a mining boom, and the currency is still regarded as too high."