More on Goldman’s rate cut call

Here’s some more from Tim Toohey on the forthcoming RBA rate cut:

From our perspective, while it is encouraging that financial markets increasingly share our view that interest rates in Australia are more likely to decline than increase in the year ahead, we continue to see the greatest probability of an interest rate reduction in September 2014 rather than 1Q15 as currently anticipated by interbank futures. Our rationale is;

• The RBA tends to ease once the inflation peak has been reached and growth momentum has peaked. On our forecasts this occurred in 2Q14 and 1Q14 respectively [Toohey sees 2% inflation next year]

• The RBA is sensitive to tightening broader financial conditions which have occurred in recent months.

• The RBA is aware that the renewed bout of fiscal restraint commences in 3Q14 after a year of effective stimulus.

• The RBA is typically sensitive to large shifts in consumer and business sentiment, particularly if there is a limited rebound.

• By easing in September the RBA also has the optionally of easing again ahead of the Christmas trading period should it be required.

Obviously a high surprise on inflation in 2Q14 would influence our thinking on the timing of a further interest rate reduction. However, as our inflation preview below highlights, a relatively benign 2Q14 inflation print is expected despite the June quarter being a seasonally high quarter for inflation.

Yep. And with macroprudential necessary to control the tearaway Sydney property bubble, the real question is, what difference will it make?