Lowe may have to soften his stance later this year

Recent comments by Governor Lowe have made it pretty clear that the Reserve Bank of Australia doesn’t intend to cut interest rates further, including at its next policy meeting on Tuesday 7^th March. That’s not too surprising given the RBA remains fairly optimistic about the outlook for GDP growth and inflation and is still concerned about stoking the housing market further. But the Governor may have to soften his stance later this year if, as we expect, GDP growth and inflation are weaker than the RBA expects and if the housing market cools or the labour market deteriorates. This may prompt further rate cuts, perhaps to 1.0% in the second half of the year.