Australian Markets Weekly

The RBA Board is sure to leave the cash rate at 2% on Tuesday and their Statement is likely to again signal a very modest easing bias. Absolutely no intent, but nonetheless an acknowledgement that if needed they still have 200bps of interest rates to play with.

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China and Emerging Economies – Very alert but not yet alarmed

The RBA Board is sure to leave the cash rate at 2% on Tuesday and their Statement is likely to again signal a very modest easing bias. Absolutely no intent, but nonetheless an acknowledgement that if needed they still have 200bps of interest rates to play with.

While the RBA has 200bps in the bank, it’s clear there is a reluctance to use it – i.e. the hurdle to cut again is fairly high[1]. Given the high hurdle I expect a fair amount would need to go wrong – not just fail to get better – for the RBA to cut again. Put another way, it’s less likely the RBA will be tinkering with 25bps cuts here or there and it may be best to consider the final 200bps as an emergency reserve – i.e. if the economy is turning down again (the unemployment rate is headed to 7% or beyond) then pull very hard.

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