Will the RBA shift to an easing bias today?

Via Westpac:

Tuesday’s RBA Board meeting has taken on extra importance given the surprise RBNZ decision to switch to an easing bias. While we do not expect a similar shift, there is a significant dovish market contingent impatient for the RBA to capitulate, so price action will be highly sensitive to the Governor’s Statement and we expect the 6bp of rate cuts factored-in for the May to be pared back.

The other major risk event is Tuesday’s 2019-20 Federal Budget which will basically mark the start of the election campaign. The Government will be keen to demonstrate its financial management credentials while also announcing spending and tax cut measures aimed at improving its chances of winning the Election, which is expected to be announced by the weekend.

In recent years the Budget has not been a major market mover but there is some scope for that to change. If the Government were to attempt to close the current polling gap with a large stimulus that spends one-off windfalls and locks in long term structural fiscal imbalances for short term purposes, there may be a more negative response. The current longheld base case for the bond market is that future gross bond issuance will fall significantly. So surpluses are clearly a positive, but already in the price. So, the government’s tax and spending policies could be seen as a negative.

Given how much the market has already factored-in for the RBA profile, we therefore see a bearish skew to near term market outcomes. The curve should steepen under that scenario as well.

In addition, should the announced stimulus be large enough, the question would then arise as to the implications for monetary policy. In our view, there are sufficient uncertainties around the tax cut implementation schedule that that any paring back of rate cut expectations would be minimal.

The RBA should definitely shift to an easing bias today. It’s been given the perfect cover by the RBNZ. The market is not expecting it, either, so that would provide bang for its buck. Especially since it would make a nice one-two punch with the Budget to reassure households that they are supported.

Yesterday’s NAB survey was plenty poor enough to give it the go ahead:

Still, it did give the glass 20% full brigade a little lift in employment intentions and the RBA has been very deluded.

I’ll punt and say it will shift today but I wouldn’t bet on it!

David Llewellyn-Smith


  1. No shift today. The RBA will wait for Budget to reveal the extent of stimulus and also the accompanying updated Treasury economic forecasts (lol, but still closely followed).

  2. Not a chance of a cut with the budget release tonight.

    As for some Greenspan chook feeding about future intentions, well anything is possible on that front but what may be more likely is the RBA providing further commentary on the importance of other levers of policy.

    Especially those that are more democratic and not controlled by the ‘independent’ RBA.

    Not that the RBA likes giving up control but we are talking about a potential hospital pass to an incoming government.

    • “RBA providing further commentary on the importance of other levers of policy”

      YEP – that’s a very good likelihood – That coupled with a booming ToT and upcoming budget stimulus

      I expect them to stay neutral and the AUD USD to lift this afternoon…. to 72?

    • agree – in view of the context and potential for a stimulus bidding war, its a great time to be directing attention to fiscal policy.
      We know that RBA does value surprise though – and nature of surprise is that it cant easily be predicted! So the outcomes will be highly asymmetric – e.g. easing bias may see a drop of 100bps within 24 hours, whereas a hold is BAU (maybe+20bps). So I think continuation of current guidance is much more likely, but am betting on a cut due to greater payoff.

  3. wow there a few no’s around.
    easing bias isn’t a cut
    It’s just saying don’t panic rates aren’t going up.
    I think HnH is correct.
    They can restore some credibility by going to an easing bias and Gov will like it. If they don’t and they need to cut May/June they’ll look stupid. But that wouldn’t surprise me, in 2007/8 when world was going into crisis RBA was saying next move is up so people looked in fixed rate home loans at the high around 8%, completely irresponsible.
    I’d say the chances are slightly above 50% to move to easing bias.
    They might say due to external/international factors, just blame overseas, and if RBNZ has moved I don’t know how RBA can’t.

    • Lower teh rates, got us into this mess.. I hate this idea that we should drop rates further. It’s total BS. (I hold $USD because I know they will do it eventually). Idiots.

      • proofreadersMEMBER

        Yep – they are a one-trick pony: screw savers until their innards are on the floor.

  4. think they will stay put and leave it to the govt budget statement tonite…that puts pressure on govt to do some of the heavy lifting throu fiscal policy…or caveat is that move to easing bias and help the govt….whatever the way, they want more involvement from govt spending…