Flat inflation to sideline RBA today

by Adam Smith01 Jul 2014
Flat inflation will likely see the RBA remain on the sidelines again today.

The TD Securities - Melbourne Institute Inflation Gauge remained flat in June, following on a 0.3% rise in May. For the 12 months to June, the Inflation Gauge sat at 3%, jist at the top of the RBA's target band.

TD Securities head of Asia-Pacific Research Annette Beacher said the company expected underlying inflation to remain in the top half of the RBA's 2-3% target band, but that the Reserve Bank was expected to keep rates on hold at its meeting.

"We expect [today's] RBA Board Meeting to pass without much excitement, with the statement likely to resemble those of recent past. We expect the cash rate to remain unchanged at the record low of 2.50%, with the RBA likely to voice a neutral to dovish bias. Although the RBA sighted signs of improvement in domestic data in its previous statement, it’s likely the RBA will reaffirm its call for a lower AUD to foster growth. Even if Q2 CPI exceeds the top end of the RBA’s band, it appears that it, like the Fed is willing to run the risk of higher inflation before it acts, hence why we pushed our call for the 1st RBA hike to Q1 2015. For now expect the RBA to echo ‘a period of stability in interest rates," Beacher said.