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28 Feb 2014
Flash: Deceleration in inflation for RBA? - BAML
FXStreet (Guatemala) - Strategists at Bank of America Merrill Lynch said, "The Reserve Bank of Australia opened the year by shifting to a neutral policy bias which has ruled out any short-term move of the cash rate. As such, no policy action or shift in tone is expected at next week's Board meeting."
Key Quotes:
"The RBA's move to neutral was in part a reaction to stronger inflationary pressures that emerged in the second half of 2013. And this trend is expected to continue in the first part of 2014. These pressures are being prompted by a stronger pass-through from the depreciation of the A$ than anticipated and stubbornly elevated domestically generated (non-tradable) inflation."
"However, we forecast inflation to have a markedly decelerating profile through the second half of the year. Indeed, we anticipate that price pressures will dissipate enough over this period to give the RBA the freedom to ease policy further if required to support activity in the non-mining economy. The basis for our decelerating inflation forecast is a combination of policy factors, sub-trend economic growth and higher unemployment, and a relatively stable outlook for the Australian dollar."
Key Quotes:
"The RBA's move to neutral was in part a reaction to stronger inflationary pressures that emerged in the second half of 2013. And this trend is expected to continue in the first part of 2014. These pressures are being prompted by a stronger pass-through from the depreciation of the A$ than anticipated and stubbornly elevated domestically generated (non-tradable) inflation."
"However, we forecast inflation to have a markedly decelerating profile through the second half of the year. Indeed, we anticipate that price pressures will dissipate enough over this period to give the RBA the freedom to ease policy further if required to support activity in the non-mining economy. The basis for our decelerating inflation forecast is a combination of policy factors, sub-trend economic growth and higher unemployment, and a relatively stable outlook for the Australian dollar."