The Reserve Bank of Australia’s board, during its meeting on 5 April, is expected to once again keep the cash rate at 2%. Still, the central bank is expected to keep its mild dovish bias during the meeting and continue hinting at ongoing concerns in the economy. Anyways, RBA’s meeting is expected to be just a repetition of its usual themes underlined in the past.
Since the last meeting, the most important data release has been the Q4 growth figures. In spite of losing momentum in Q4, GDP grew unexpectedly by 0.6% q/q, as compared with market forecast for a growth of 0.4% q/q. This is equivalent to growth of 3% y/y after a rise of 2.7% y/y witnessed in Q3. Meanwhile, the third quarter’s growth was slightly revised upwards to a strong growth of 1.1%, as compared with the earlier figure of 0.9% y/y. Mining sector mainly drove GDP growth in Q4, whereas professional, technical and manufacturing were the main detractors.
Overall, total consumption in Q4 grew 0.7% q/q, slightly softer than the Q3 growth of 0.8% q/q. Meanwhile, private GFC contracted at a marginally softer rate of 1.9% q/q in Q4 after falling sharply by 2.3% q/q in Q3. Public GFC also surged by almost 6% q/q after declining 8.3% in Q3. Meanwhile, February’s labor data gave mixed results as total employment grew just by a nominal number of 0.3k, while the jobless rate surprised on the upside and dropped just 0.2ppt to 5.8% after increasing to 6% in January.
Fort the past ten months, since May 2015, the central bank has kept the rates unchanged. It is likely to keep the OCR on hold in its next meeting also. The CPI report for the first quarter of 2016 is due to be out during the end of April. Price levels are expected to remain benign in Q1 2016 given the sharp changes in global fuel prices in the last few weeks. Soft inflation outlook alone does not set a case for rate cuts. But weak labor data and GDP contributors might help RBA to consider easing again. Still the most cautious approach for the central bank currently will be to keep rates on hold for the next few months and continue assessing developments in the upcoming period before changing rates later in Q3.
