RBA: Not enough grounds to cut rates in August - Commerzbank

Antje Praefcke, analyst at Commerzbank notes that even though the market widely expects the RBA to cut the interest rate by 25 basis points from 1.75% to 1.50% next Asian session, they do not see enough grounds to lower the key interest rate in August.

Key Quotes

“Indeed, the economy is looking quite solid, as the RBA noted at its last meeting; At that time it had wanted to wait for further data on the labour and housing market and inflation. The indicators published on the labour and housing market have been mixed and therefore do not clearly argue for a rate cut next week. And the next labour market report will not be published until mid-August, i.e. after the interest rate meeting.”

“The other decisive factors are inflation and the exchange rate. Although inflation is still relatively low, the gauge preferred by the RBA, the so-called “Trimmed Mean” has stuck at 1.7% in Q2, which is well above the RBA’s expectations of 1.5%. The AUD is definitely still too strong for the RBA’s liking but it is currently trading at the levels at the beginning of July and is therefore no conclusive argument for a rate cut. On the other hand, it is clear that the RBA must continue to sound dovish to prevent the AUD from appreciating, which could push inflation down.”