(6 September 2011 – Australia) HSBC chief economist Paul Bloxham told The Australian this week that the Reserve Bank of Australia (RBA) needed to manage the two-speed economy, but to stay conscious of the troubled global economic context.’The RBA are now in wait-and-see mode,’ Mr Bloxham said.
Mr Bloxham said there was insufficient evidence that the Australian economy had weakened enough to prompt the RBA to cut rates.
‘To cut rates, the RBA would need to believe that recent events are enough to cut their forecasts, so that underlying CPI heads to the lower part of the target band,’ Mr Bloxham said. ‘That’s a big move.’
The futures market has priced in 115 basis points of cash rate reductions in the next year, but has started to pare back expectations of more aggressive cutting.
During last month’s volatility, it was tipped that up to 180 basis points could be slashed from rates.
‘The downside risk to growth in the developed countries would be weighing on their minds, but this needs to be balanced against the upside risk to inflation from the ferocious demand for Australia’s commodities, the ongoing mining boom and the weak supply side of Australia’s economy.’