I was dismayed when national treasure Tim Toohey pulled his rate cuts late last year and am equally thrilled to report their return (in terms of moral support for my outlook) forecasting May and July cuts:
A number of factors have combined to increase the prospect that the RBA will again be dragged into a deeper easing cycle..
A new round of central bank easing – including further moves into negative interest rate space and the market’s diminished assessment of the prospect of further US Federal Reserve hikes – leaves Australia vulnerable to a higher exchange rate and tighter financial conditions should the RBA elect to leave interest rates unchanged.
A sustained tightening in financial conditions has taken our Financial Conditions Index to levels well above each of the 4 last interest rate reductions by the RBA. Our assessment that inflation will undershoot expectations in 1H16 and employment growth in 2015 could have been overstated by as much as half and will likely correct in coming months.
The risk of an early Federal election in March or April remains, bringing with it the risk that another round of fiscal consolidation will be attempted post the election in the May Budget. As such the RBA may seek to accommodate the fiscal tightening.
This was pre-Numberwang.
