The Reserve Bank of Australia has decided to keep the official cash rate on hold at its June board meeting.
The RBA's decision comes after the central bank cut the cash rate by 25 basis points in May.
The ASX 30-Day Interbank Cash Rate Futures June 2016 contract was pricing in a 92 per cent chance of ‘no change’ to the cash rate on Monday.
HSBC chief economist Paul Bloxham pointed to the “upside surprise” of last week’s first-quarter GDP figures, which grew by a stronger-than-expected 3.1 per cent year-on-year.
“The stronger GDP, combined with the signs of continued modest improvement in the labour market, are likely to keep the RBA from considering a cut in June or July,” Mr Bloxham said.
Given that the “driving factor” behind last month’s cut in the official cash rate to 1.75 per cent was the “surprisingly weak” first-quarter CPI print, the RBA will need to see the second-quarter CPI figures (due to be released in July) before it considers a further cut to 1.5 per cent, he said.
An improving US economy and a more aggressive Federal Reserve mean that the US market is pricing in a 55 per cent likelihood of a Federal Reserve rate rise by July, he said.
“A key result of the more hawkish [Federal Reserve] has been a depreciation of the [Australian dollar], which has fallen from US$0.78 in mid-April to around US$0.72 recently,” Mr Bloxham said.
“We see the RBA on hold in June and July, and have a cut pencilled in for August, after the [second quarter consumer price index reading]. However, the risk to this view is that the RBA delivers less, not more, in our view.”
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