The Reserve Bank of Australia (RBA) is expected to cut the policy cash rate 25bps to a low of 2% on 5 May. This is likely to be another close call between easing the cash rate and delaying it to later in the year.
The likelihood of a cut is higher, slightly. While Q1 inflation was a bit higher than consensus expectations, it may still be low enough for the RBA to cut rates.
The RBA has surprised markets twice in the past three months, leading to uncertainty about its May policy decision; markets are currently pricing in a 62% probability of a rate cut.
While March labour-market data was encouraging, the RBA will probably want to see further evidence of a turnaround before abandoning its easing bias, particularly given labour-market volatility. Q4 GDP was muted at only 2.5% y/y, below trend growth.
"With fiscal stimulus unlikely given low commodity prices, we believe that the RBA will ease monetary policy to support growth", says Standard Chartered.
