An improvement in the labour market and an enhanced global growth environment have seen an economist diverge from a previous industry consensus of February to March for the Reserve Bank to cut rates.
Diana Mousina, senior economist at AMP Capital has made the call despite noting negative growth form the bushfires and Australia being a long way from “full” employment with labour utilisation at 13.4 per cent, noting market pricing is now only expecting a 25 per cent chance of a rate decrease in next week’s meeting.
She also added GDP growth is likely to be revised down in its quarterly statement, inflation remains low and the new coronavirus poses negative risks to global growth.
“While we think that the RBA should cut the cash rate at its February meeting… the improvement in the labour market and friendlier global growth environment [mean] it’s a close call and we now expect the RBA to delay cutting the cash rate until March,” she said.
She however cautioned a February cut may come to light if the yet to be released December quarter inflation data of underlying inflation misses the RBA’s forecast of 1.6 per cent annual growth.
“In Australia the December quarter inflation data is expected to show headline inflation up by 0.5 per cent in the December quarter, or 1.7 per cent year-on-year,” Ms Mousina wrote.
“The RBA’s preferred ‘trimmed mean’ measure of core inflation should show quarterly growth of 0.4 per cent or 1.6 per cent over the year, which is very low and has now been missing the target since 2014.
“December NAB business confidence/conditions may be negatively impacted by the hit to activity by the fires.”
Australian consumer sentiment also fell in January by 1.8 per cent, with AMP Capital reporting it at its lowest levels since mid-2015.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...