RBA remains more optimistic than most

The statement released after the Reserve Bank of Australia today left interest rates at 1.5% remained fairly balanced, but recent speeches have made it clear that the RBA doesn’t intend to cut interest rates again. We think the combination of weaker underlying inflation and a softer housing market will prompt it to change its mind later this year. At the least, rates won’t be increased this year or next. The RBA has maintained its neutral tone on the outlook for interest rates, although today’s policy statement had a slightly more optimistic tilt. It noted that conditions in the global economy have “continued” to improve over recent months and the rise in commodity prices is now seen as providing a “significant boost” to Australia’s national income compared to just a “boost” in February. Admittedly, the statement did not repeat the phrase in February that the RBA expects GDP growth to be “around 3% over the next couple of years”. But since the 1.1% q/q rise in GDP in the fourth quarter was larger than the 0.8% q/q gain the RBA expected, the Bank won’t have become more downbeat. Indeed, the statement again said that Australia is continuing its transition from the end of the mining boom.