Having dropped their July cut, Westpac has now also discarded their August rate cut (ie, 50 basis points worth in just two months). AAP reports, "[D]ue to the board's current policy disposition it is necessary to push out the timing of the first cut from August until the fourth quarter of 2012," Mr Bill Evans said."
I expect other doves to follow suit and will check the final Bloomberg survey changes prior to the August board meeting. Anything can happen between now and then, and, as always, global markets combined with Aussie core CPI will be crucial to the local monetary policy context.
At the margin, the house price action will also be very influential, methinks. The daily price declines from mid April to end May would have had the RBA brows furrowing--the doomsday scenario is adverse collateral revaluations on the major bank balance-sheets. Say no more. That is why the capital gains over June and July are so important to settling the RBA's modestly positive base-case.
But, equally, the RBA likes to have its cake and eat it when it comes to housing. The second prices show any serious sign of life they will start fretting about the effects of the currently low interest rates. The RBA will not want to see excessive house price inflation in 2012. It would be great news for banks, since it would boost the asset values on their balance-sheets, which will feed back into stronger credit growth and ultimately RoEs. Not such welcoming news for a central bank that has been fending off sensationalist waves of house price bubble spruikers for the best part of five years.
As always, the talented folks over at Martin Place have a lot on their plate.
