RBA's SoMP: guidance or just reasoning? - ANZ

Analysts at ANZ explained that following this week’s 25bp rate cut, we expect today’s SoMP to discuss the reasons behind the easing rather than provide forward guidance.

Key Quotes:

"We still see rates on hold at 1.5% at this point, albeit with an easing bias given that the RBA is set to forecast persistently low inflation."

"The rates market currently has a further 25bp of cuts priced in by May 2017."

"We see this as excessive for now. In our view, the RBA should leave its forecast profile for persistently low underlying inflation intact, while the outlook for growth should be little changed, except for higher near-term growth, given Q1 GDP was significantly higher than the RBA expected."

"The forecast horizon will be extended six months to Q4 2018 and we think the RBA will forecast underlying inflation to return to the 2-3% target band by that time. If we are wrong and the RBA continues to forecast a range of 1.5-2.5%, we would view this as a dovish signal."