The release of the second quarter CPI report has provided some economists with an opportunity to revisit their predictions of an August interest rate cut. Prior to the CPI, we had a total of 10 view-changes in the last month, all transitioning from an August cut to no move. Some who expected back-to-back cuts in July and August, such as Westpac, have now deferred the next rate reduction into the fourth quarter.
Yesterday I cheekily suggested economists would run from their rate cut calls as quickly as Superman does Kryptonite. Since the 11.30am CPI release I count another six that have shifted to no move. The one apparent hold-out is my old friend, and former advisor to Julia Gillard, Stephen Koukoulas.
Interestingly, the CPI has only reaffirmed Koukie's conviction that the RBA will drop rates in August. On Twitter yesterday, he argued, "RBA has scope to cut and should and probably will...Looking more at inflation data and it seems a no brainer that the RBA should be tweaking rates lower next month. Low inflation is entrenched."
When asked whether he was backing away from his August cut call, Koukie responded emphatically, "Not at all - firmly and squarely on the cut: It's global aided and abetted by near record low inflation." If Stephen gets this one right, it will be a cracker to sit alongside his terrific punt on 50 back in May (although he did call a cut in July that did not eventuate).
Here is what some of the other big guys said:
CBA:
But RBA commentary suggests a desire to wait and assess – we have pushed the 25bpt rate cut pencilled in for August back to November.
UBS:
Together with RBA comments that things seems to be ‘about right’, and recent improvement in some domestic data (retail/credit/sentiment), we now see the RBA on hold from here [from a previous August cut].
TD Securties:
Bottom line - our base case has shifted, pushing the next -25bp from August to November, timing that merely coincides after the next CPI report, no other reason.
JP Morgan:
Indeed, the mixed results mean the inflation data is not the smoking gun that would have helped solidify expectations for a near term rate cut. Indeed, it probably will take a marked deterioration in conditions offshore and/or in financial markets, or a slump in key domestic data released in coming weeks, to get RBA Board members over the line next month. Our view remains that further policy support will be provided, but RBA officials may wait a little longer than our forecast implies.
HSBC:
We still expect one more 25bp cut, in Q3, as global downside risks are expected to force the RBA’s hand. At this stage we favour a September rather than August cut [shifted to September after pinning August in Bloomberg survey].
