RBA rates to remain on hold through both 2015 and 2016?

RBA rates will remain on hold through both 2015 and 2016. However the risks are clearly to the downside and will be dependent upon the Bank's confidence in the outlook for the unemployment rate and economic growth. 

The unemployment rate is expected to edge up further and while there appears to be some evidence in the statement that the Bank might be having some doubts around their long held view that the unemployment rate would edge up further we think they are still expecting such a result.

Secondly, GDP growth will lift from 2.5% in 2015 to 3.25% (trend) in 2016. Any substantial downward revision to that 2016 estimate should trigger a further policy response. The next test of that forecast will come in August and while there is a case for the Bank lowering that number to 3% that is not sufficient to support another rate cut. For that reason the first practical 'window' for lower rates would be November when the data might be pointing to a softening growth outlook. 

The most important determinant of that forecast will be the momentum in the economy in the second half of 2015. By the November Board meeting the September quarter national accounts will still be one day away making it difficult to gauge momentum in 2015 H2. As with this year that would tend to push any further cut into the first half of the following year.

There is insufficient evidence to lower those growth numbers sufficiently to justify a rate cut, says RBC capital markets.