RBA willing to ignore the weak economy

Even though the economy may have contracted in the first quarter, the Reserve Bank of Australia left interest rates at 1.5% today and retained its optimistic view on the economic outlook. We suspect the RBA would be willing to look through a temporary fall in GDP, but it would find it harder to ignore two weak quarters in a row. While our central forecast is that interest rates will remain at 1.5% this year, the chances of a cut later in the year have increased somewhat.