RBA: No adjustments in cash rate - TDS

Analysts at TDS note that as widely expected, the RBA did not adjust the 1.5% cash rate at this meeting and its last adjustment was a -25bp cut on August 2016.

Key Quotes

“The statement was similar to March, although RBA noted that further global monetary tightening was likely: "As conditions have improved in the global economy, a number of central banks have withdrawn some monetary stimulus and further steps in this direction are expected". In bold was the new addition.”

“The rapid lift in BBSW rates has been notable, and at 2.035% for three months has recently accelerated. We were looking for a comment on the lift in funding costs, and the RBA wisely stuck with a factual statement: "There has, however, been some tightening of conditions in US dollar short-term money markets, with US dollar short-term interest rates increasing for reasons other than the increase in the federal funds rate. This has flowed through to higher short-term interest rates in a few other countries, including Australia".”

In comparison, OIS is flat and only barely ~30% priced for a 25bp hike by November. This is consistent with RBA Governor Lowe's mantra that the next move is up, but not for some time.”

“The AUD at $US0.768 is unchanged after the as-expected RBA statement, where the pickup from the overnight lows occurred long before the RBA hit the tapes. Since the February SoMP the exchange rate is weaker, although is trading rich compared with the negative interest rate differential against the US. We look for $US0.77 by year end, above consensus.”

“Consensus expects the cash rate to remain unchanged at 1.5% into 2019, and hence the tone of these monthly statements are not expected to change for some time. In contrast, we look for a hawkish turn towards year end.”