Reserve Bank's dead rubber

Citigroup economic forecaster Joshua Williamson expects the central bank to leave its cash rate unchanged at 2.75% today but to try to “jawbone” the Australian dollar further down while maintaining an “easing bias” in its monetary stance.

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% 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% economic growth for Australia in 2013 and 3.1% next year. Outside mining consumption, housing investment and exports are supporting growth.

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

Eureka Report research has also found that the recent leadership spill could impact the willingness of the Reserve Bank to change interest rates.

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% until the second quarter of 2014.

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

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