The Reserve Bank of Australia is moving closer to cutting rate according to Credit Suisse.
“Recent comments from RBA Governor Stevens suggest that the Bank is more concerned about the growth outlook than financial stability in the abstract,” Credit Suisse strategists Damien Boey and Hasan Tevfik say in a report. “The unwillingness of the RBA to implement macro-prudential tightening suggests to us that the Bank is worried about overtightening, which in turn implies downside growth risks.”
“We believe that the Bank’s next step will be to cut rates, especially if its goal is to support a multi-year upswing in the residential investment cycle. As it stands, rate settings are not accommodative enough to support this, because the housing market is tipping into marginal oversupply despite the stimulus delivered to date.”
They say shallow rates cuts of 25-50 basis points would support the dividend trade within the equity market, and de-equitisation, while deeper rate cuts of 100 bp or more would signal a hard landing consistent with earnings cuts and more defensive positioning.”
Err, macroprudential is coming, from APRA, making the rate cut case.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
