The Reserve Bank of Australia (RBA) is expected to cut the policy cash rate by 25bps to 2.00% at the Monetary Policy Committee (MPC) meeting on 5 May. This will likely be another close call between easing the cash rate and delaying it to later in the year; the likelihood of a cut is slightly higher. The RBA has surprised markets twice in the past three months, leading to uncertainty about its May policy decision. Q1 inflation was not low enough to trigger an immediate rate cut, but there is room to cut rates if needed. Home loans to investors dropped 3.5% m/m in February, the sharpest drop in 26 months, and property price increases outside of Sydney and Melbourne have slowed; this should allow more comfort to cut rates. «We expect the strength of the Australian dollar, currently at a three-month high, to weigh on the RBA’s decision», says Standard Chartered.
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