RBA told to save ammo until 2012

by Adam Smith06 Dec 2011

Easing inflation numbers shouldn't necessarily jolt the RBA into action today.

The TD Securities - Melbourne Institute Monthly Inflation Gauge fell 0.1% in November, and TD's head of Asia-Pacific research Annette Beacher said the RBA should reserve its rate cutting ammo for the New Year.

"For the RBA Board meeting today we caution against rushing into another 25 basis point easing, as the impact may be lost within volatile and unstable global financial markets. Instead, the RBA is in a strong position to voice an easing bias this week, but not deliver another 25 basis point cash rate cut until early 2012 to start the New Year with truly neutral monetary policy for whatever lies ahead," Beacher said.

Not all analysts are calling for the Reserve Bank board to sit on its hands. Westpac chief economist Bill Evans has tipped a further 25bp cut to be delivered today. While Evans said the decision to cut rates was a "finely balanced issue," he pointed to a deepening crisis in Europe and slowdown in Asia as providing possible urgency to the board.

"On those really tricky occasions like the current one, experience dictates that the best approach is to forecast what you think should be the most appropriate policy response. On this occasion we think the best policy would be to cut by a further 25bps, thereby bringing forward our forecast profile of moves of 25bps in February, May and August to December, February and May," Evans said.

Evans said the forecast was made in light of Westpac's view of the need for a further 75bps of cuts, with the final move coming around mid-2012.

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