MARKETS SPECTATOR: Reserve Bank's dead rubber

Citigroup says the Reserve Bank won't cut rates this month, and will only reduce further if the second-quarter inflation number is exceptionally low.

Joshua Williamson, who was part of Citigroup’s economic forecasters that correctly forecast the Reserve Bank of Australia would cut its benchmark cash rate in May, expects the central bank to leave its cash rate unchanged at 2.75 per cent today but to try to “jawbone” the Australian dollar further down while maintaining an “easing bias” in its monetary stance. 

“Today’s a dead rubber,” Williamson told Markets Spectator referring to the Reserve’s monetary policy meeting. Global manufacturing numbers, with the exception of China, are firmer, he says. The Australian economy has hardly fallen off a cliff. Williamson expects 2.6 per cent economic growth for Australia in 2013 and 3.1 per cent next year. Outside mining consumption, housing investment and exports are supporting growth.

“That’s why investors are looking offshore for direction,” says Williamson.

Still, if the second-quarter inflation number is exceptionally low, the central bank may decide to cut rates next month. But Williamson and his colleagues say there is not much likelihood of that happening. Citigroup expects the cash rate to remain at 2.75 per cent until the second quarter of 2014.

At 1058 AEST, the Australian dollar was trading at US cents 92.34. It is down 11 per cent against the US dollar from April 30 when it was trading at $1.0371, according to Bloomberg data.

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