Three economic factors under RBA’s radar for a prospective interest rate cut



The updates coming from the Reserve Bank of Australia (RBA) relating to a probable interest rate cut in the month of August 2016 based on their July meeting, hinge on three key economic factors. These entail review of current month’s inflation data, housing data and labor data such that the RBA would be able to assess better about any changes required with regard to the rate cut policy. The July board meeting resulted into no change in the interest rates, which are maintained at a record low of 1.75 per cent as that of May. RBA’s stance, as understood by the market at large, on the three economic factors goes as herein below:

Inflation: The current scenario in Australia reveals a low inflation environment which in turn affects buyers’ sentiments given the purchases being put off. This comes at the back of having a view that prices might undergo a further reduction. This results in lower growth thereby affecting interest rate. There are speculations that RBA might bring a further cut by 25 basis points to 1.5 per cent or even as low as 1 per cent if the underlying CPI rises by 0.5 per cent or less over the quarter. There are news doing the rounds that RBA might not be seeing their expectations (target of maintaining inflation between 2 percent and 3 percent in the medium-term) being met about underlying inflation measures. Inflation drop below the target band and forecasts seems to be the topic of discussion.


Inflation trend (Source: Reserve Bank of Australia)

Housing data: It has been indicated that housing data might not change RBA’s view that conditions would moderate. Particularly, RBA’s last meeting did not indicate any impact relating to May’s rate cut on housing markets. RBA reportedly notices that new construction with regards to supply of apartments particularly, is a deterrent to future price growth. There is a sluggishness in housing churn given the easing in housing credit growth. The market activity might have gone down in a way by the State Government changes to stamp duty on foreign investor purchases of residential property. However, RBA is still keeping a note of the housing market performance.


Housing Prices (Source: Reserve Bank of Australia)

Labor market: Thought RBA has indicated a look into the labor market as a decision-making factor for interest rate cuts but experts believe that the recently released labor market report might not have a significant impact. We do witness a slow growth when it comes to job creation as opposed to what we saw in year 2015 but recent employment data has been relatively moderate with job creation continuing and the unemployment rate remaining around two-and-a-half year low levels. Given the entire scenario, the sentiment towards labour markets still looks subdued.

Overall, upcoming inflation data release for June Quarter will put the bolts in place and indicate about RBA’s probable call in its August meeting.

kunalsa1 (1)

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.





Leave a Reply