From Goldman Sach’s Tim Toohey, Andrew Boak and Philip Borkin and their assessment of yesterday’s RBA minutes:
While there were no major changes within today’s Board Minutes, we do sense a slightly more cautious tone in some respects. Specifically, the RBA has highlighted that the recent strong growth in exports will not be sustained, that retail momentum has eased (on the upbeat assumption that consumer confidence is around average), and that output growth is about to slow as “significant headwinds” intensify. The RBA also continues to downplay the degree of improvement in the labour market, and sounds more at ease with recent house price dynamics.
Even more importantly, we note that consumer confidence has tanked in the period since the Board meeting at the start of the month, and that the iron ore price has fallen a further 6% even as the AUD has been little changed. It will be interesting to monitor how these material developments feed into the RBA’s policy deliberations over the coming months.
Overall, the RBA looks quite content to leave the policy rate unchanged at the current level for some time. If, however, the activity/survey data continue to soften, commodity prices continue to fall, and the fiscal drag intensifies, as we expect – a rate cut as early as July is still likely, in our view.
