Australia might see two rate cuts in H1 2015 – ANZ

FXStreet (Barcelona) - According to ANZ, the RBA may be forced to reduce its nominal cash rate over the months ahead to maintain a suitableaccomodative policy stance as housing credit slows and inflation falls, forecasting two 25bp rate cuts over the first half of 2015.

Key Quotes

“We remain confident that the Australian economy will make the transition from the mining boom back to what we call 'business as usual'. A steady expansion of the economy led by business spending, housing investment, consumer spending and employment growth across a wide range of sectors is still the most likely outcome over the medium-term.”

“the downward pressure on prices from lower energy costs and the risk that the Australian dollar’s depreciation may stall as global interest rates fall make monetary policy a potentially important policy lever once again.”

“To hold rates steady as inflation falls and housing credit slows would be to allow a proxy tightening of policy to occur. To maintain a suitably accommodative policy stance, the RBA board may be forced to reduce the nominal cash rate over the months ahead.”

“As such, we have now factored into our forecasts two 25bp rate cuts over the first half of 2015. We think the first will come in March following confirmation of low inflation in late January as well as data on housing activity in February when the market re opens after the summer lull.”

“The second is likely after the Q1 inflation report in late April really shows the disinflation trend in place from falling energy prices and a soft labour market. This would take the cash rate to 2% following the May RBA board meeting.”