Friday, 30 September 2016

September Rate Cut is not Completely out of the Question

6th September 2016

September Rate Cut is not Completely out of the Question 

While it is highly unlikely, the RBA could further cut interest rates today when they meet for their decision on monetary policy for the month. In light of the 25 basic point cut last month, the AUD/USD actually increased by almost 1 cent when averaged over the month of August to July. This being counter logical to the outcome of a 20% reduction in the interest rate differential between Australian and the United States in a pre GFC world. Theoretically, lower AUD would increase import prices and decrease export prices, resulting in higher inflation, lower unemployment and higher economic growth. If the RBA are resolute to increase inflation to their targeted 2-3% range, and increase employment and economic growth, a .25% rate cut could be on the table at 2:30PM today. However, given the ASX 30 Day Interbank Cash Rate Futures is indicating only a 5% expectation of a decrease in the cash rate to 1.25%, this would be a black swan for market expectations.