All of the reasons the RBA gave for cutting the official cash rate in February will apply tomorrow when the board meets, says HSBC chief economist Paul Bloxham.
In a note to investors published on Friday, Mr Bloxham said the RBA's unexpected decision to cut rates in February was accompanied by a downward revision of its GDP growth forecasts for 2015.
The Reserve Bank revised the growth forecast down by 25 basis points to between 1.75 per cent and 2.75 per cent.
The RBA's forecast for GDP growth is also conditional on a further 25-basis-point cut to interest rates, Mr Bloxham noted.
"The RBA’s own explanation for its sharp change of view was that the pace of rebalancing had been slower than expected.
"It is clear that the RBA’s view in early February was that the 25-basis-point cut it delivered would not be enough," Mr Bloxham said.
Glenn Stevens also appears to be confident that APRA's new 'prudential toolkit' will be adequate to contain any exuberance in the residential housing market.
"The RBA also seemed reluctant to set interest rates for the nation on the basis of conditions in the Sydney housing market," Mr Bloxham said.
"We expect the RBA is more likely to deliver another cut sooner, rather than later.
"This could then afford it the luxury of sitting still for the following few months following a further cut, as it monitors the effect of the interest rate cuts that had already been delivered," Mr Bloxham said.
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