Brokers anticipate RBA inaction

by Adam Smith05 Jun 2012

Brokers are sceptical that the RBA will take action when it meets today.

Despite low inflation, disappointing retail numbers and continued worry over the European debt crisis, a Loan Market poll has found the majority of brokers believe the RBA will fail to act at its meeting today. Fifty-five per cent of the company's brokers said they expected the Reserve to leave the cash rate a 3.75%.

The remaining 45% of the poll's respondents believe the RBA will move, but disagree on how much. While 38% believe the Reserve will trim rates by 25bps, 7% expected a 50bp cut.

The survey comes as new inflation data has shown prices growing below the RBA's target band. The TD Securities - Melbourne Institute Monthly Inflation Gauge was flat for May, with inflation tracking at 1.8% for the 12 months to May. TD Securities head of Asia-Pacific research Annette Beacher said inflation was expected to remain in the lower bound of the RBA's 2-3% target for the June quarter as well.

While a Bloomberg survey of economists showed more than half believe the RBA will cut rates when it meets today, Beacher sided with brokers in tipping the Central Bank to remain on the sidelines.

"We lean towards the RBA leaving the cash rate unchanged, but leaving a strong easing bias suggesting that the inflation outlook allows for further easing 'should that prove necessary'," she said.

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