Second Thoughts Over RBA’s Next Move

The big moment for economists last week was the Reserve Bank’s decision to keep the cash rate on hold for a second straight month.  Westpac’s chief economist Bill Evans was one of a sizeable number who had thought an April cut more likely than not.  Even so, he had acknowledged a good chance of a May move in keeping with the historical pattern of the RBA favouring moves soon after the release of quarterly inflation figures.

Westpac now expects a May cut, with Mr Evans highlighting the RBA’s use of the term “for the time being” to describe the appropriateness of the current cash rate of 2.25 per cent.  “Following the recent introduction of that term in the March statement, we observed that on the eight occasions that it was used since the beginning of 2009, there has always been a follow-up move within two months,” he said.

ANZ’s chief economist Warren Hogan suggested there may not have been a move in April “simply because the case is not there yet”.  It could even be that there will be no more cuts this year, he said.  “However, we doubt that this recent monetary policy adjustment will be a one and done, and we have pencilled in a cut in May.”