To cut or not to cut? What to expect from the RBA today

by BN03 Jul 2012

When the RBA meets later today to determine the cash rate for July, most industry experts believe there will be no cut to the current 3.5% cash rate.

Annette Beacher, head of Asia-Pacific research at TD Securities said the RBA has moved rapidly by cutting -75bp since May, with -58bp passed on to the standard variable mortgage rate.

“We believe the RBA is in a comfortable position to sit tight for at least today’s RBA board meeting,” she said.

“We still expect the next move to be down, thanks to the favourable inflation outlook, but we don’t see any urgency for a third consecutive cut, given the recent flow of strong data (GDP, employment, exports) have defied poor sentiment.”

So what can be expected later today? Several conflicting factors are likely to weigh in heavily, and result in a cautious response. 

First, the European financial crisis, which has been causing significant unease in the international market, is at odds with a reported increase in consumer confidence in Australia. This could again contribute to a ‘wait-and-see’ approach from the RBA.

Second, many experts believe July’s figures will be influenced by domestic, not international, data, which has seen an unexpected growth in employment and GDP figures. Cutting now would seem, to many, to be frivolous and premature eafter previous consecutive reductions.

Beacher predicts a more significant change to occur in August, with a -25bp rate cut, which would reflect the growing price of accommodation, utensils, tools and insurance over the next few months.