No prospect for an August rate hike.
Good afternoon .
Inflation data remains contained.
The 2Q CPI data, released today, was more contained than all predications, and has completely ruled out all market expectations for a rate hike by the RBA, when they meet on Tuesday 3 August.
The QoQ outcomes for the RBA core measures (Trimmed Mean and Weighted Medium) both printed +0.5%, to make +2.7% YoY, and well below forecasts of +3.0% and higher.
Additionally, the QoQ headline outcome was only +0.6%, to make +3.1% YoY, and well below market forecasts of +1% and 3.6%. The softer outcomes followed warnings by the RBA of increases, after the recent increase in the tobacco tax, and higher charges from utility service providers.
From the ABS website the overview of CPI movements were as follows
OVERVIEW OF CPI MOVEMENTS
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The most significant price rises this quarter were for tobacco (+15.4%), hospital and medical services (+3.8%), automotive fuel (+2.1%), rents (+1.1%) and house purchase (+0.6%).
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The most significant offsetting price falls were in domestic holiday travel and accommodation (-6.0%), fruit (-4.8%), audio, visual and computing equipment (-6.3%), vegetables (-3.0%) and overseas holiday travel and accommodation (-1.9%).
Here is the link to the ABS website
Market Monetary Policy expectations.
In double quick time, after the CPI release, futures interest rate products recovered all pricing that was leaning toward an August rate hike. August IBs are now trading at 94.495 ( 4.505%) and just below the RBA current cash rate of 4.50%.
Spot 90 day bank bill futures rallied 12 yield points, from 95.05 (4.95%) to 95.17 (4.83%) and three year bond futures improved 95.18 (4.82%) to 93.33 (4.67%), pushing short bonds back down toward the current RBA cash rate of 4.5%.
Monetary Policy rates now likely to be on hold until November 2010.
With mixed domestic economic data expected, some slowing in the key Asian economies in China and India, and question marks over growth estimates in the US and Europe, today's softer inflation reading can allow the RBA to continue the pause, which commenced at the June 2010 meeting.
With the cash rate at or near longer term averages or normal levels, and no inflation threat, there is no reason to do anything but sit back and see how earlier rate rises work through the system. A nice position to be in and the RBA Board can continue in the position of the best Central Bank in the developed world.
Therefore with the next quarterly CPI due in late October, 2010 the best prospects is for another three months of stable monetary policy based from the current cash rate of 4.5%.
The one possible fly in the ointment is for the trading banks to push for an independent rate hike, basis increased costs of funds. Perhaps the trading banks will be sensitive to the federal election, but who knows.
What would be a great spectacle, if Gail Kelly went it alone and increased variable mortgage rates independently of the RBA.
Food for thought.
With kind regards
John Craig
Phone: (612) 8243 3526
Fax: (612) 9255 7492
Mobile:(61) (0) 416 96 7777
jcraig@bellcommodities.com.au
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