There is a lot of conflicting data out there. And the RBA does not get the next GDP numbers until before the September meeting. The NZ CPI print was lower than expected. And there are some strong correlations between Australian and NZ CPI. So August is not looking like the higher probability bet that I once thought. In this excerpt, UBS's Scott Haslem pulls in his horns ever so slightly:
"The focus is now turning to the upcoming August RBA meeting, with another strong domestic jobs report, forecasts for an uncomfortably high Q2 CPI print at the end of this month, and more settled global markets jolting near-term OIS pricing from rate cut to now pricing a 20% chance of an August RBA hike.
Over the past few months of volatility, we’ve stuck to our view that the RBA would lift the cash rate 50bp in the second half of this year, by 25bp in Q3 and 25bp in Q4. We’ve been nonetheless flagging the risk that the most likely timing for Q3’s hike – August – could be either delayed or ‘missed’ this year.
This week we revisit our RBA timing, canvassing the ‘for’ and ‘against’ arguments for an August RBA hike. We conclude that
— on our outlook (albeit solidly above consensus on near-term growth), it still appears likely the RBA will end up hiking further over coming months, and by about 50bp further this year; however,
— on balance, while August remains a close call, we now view the ‘ducks aligning’ more materially for a September hike.
Why? In short, while Q2’s CPI is likely to see the RBA revising up – again – its core inflation profile, the bulk of the growth data (in particular Q2 GDP & latest ‘10/11 capex outlook), arrive just ahead of the (later than usual) September meeting. So, if the RBA chooses, there’s likely to be enough uncertainty about the outlook (China slowdown, Euro sovereign woes and recently softer US data) to argue at the August meeting for another month in ‘wait and see’ mode. But by the September meeting, with both Q2’s CPI and GDP printing higher than the RBA forecast, we see the pressure having built enough to see them hike.
Either way, we view it a mistake to assume the RBA will sit pat over coming months in the face of inflation data that’s ‘just not good enough’, an evident lift in private sector activity and a still solid near-term outlook based on commodity income and investment activity. Whether the RBA lifts rates in August or September, we’d expect RBA rhetoric to turn decidedly more hawkish post CPI.
What about the election timing? Obviously, if the case is clear, the RBA will hike in August (or any month) whether it’s in the middle of an election campaign, or not. But we should also remember that part of being ‘a-political’ is just not being in the debate (or part of one party’s election pitch), particularly when – by their own account – lifting the cash rate one month verse another is of little consequence to the medium-term growth and inflation outlook."
