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The Reserve Bank of Australia is expected to make an easing move further this year and may cut rates to as low as 0 pct as inflation and economic growth limps on. According to BT Investment Management, weakness in domestic demand as well as disappointment in jobs sector will lead to more rate cuts this year from policymakers.
"The RBA still has scope to ease to help inflation recover and it’s quite clear to us that the RBA will be easing to 1 percent, with a move to 0 percent or lower a distinct possibility," Bloomberg reported citing Vimal Gor, Head of Income and Fixed Interest, BTIM, Sydney.
The Central Bank opted to lower its cash rate to 1.75 pct in its policy meet last week, following depressing consumer prices in the last quarter. However, the swaps market is expecting only one more cut within a span of one year.st range of challenges ranging from commodity prices to collapse in mining investment to global disinflationary impulse that led the central banks in Europe and Japan to adopt negative interest rates.
The RBA on May 6 updated its forecasts for consumer price gains amid forecasts of core inflation holding below the bottom of its target range this year.
According to a Bloomberg survey, the RBA is expected to dive in another quarter point rate cut in August, keeping the benchmark at 1.5 pct until mid-2017. However, Swaps market pricing indicates 27 basis points of easing in the next six months, and 36 over the next year.
"We believe the RBA has had a fundamental re-think about how low it might need to and how low it might be prepared to take the cash rate in this cycle," according to Nomura strategists Andrew Ticehurst and George Goncalves.
Although the picture remains unclear, the country’s economic un-sustainability will weigh on interest rate decisions. Further, China’s perturbed growth conditions will also impact in the making of economic, political and financial decisions of the economy.
"RBA monetary policy has no influence over commodity prices or overcapacity in Chinese and Japanese markets," said Vimal Gor.
