RBA: Extended period of low interest rates – ANZ

ANZ analysts point out that this week RBA Governor Lowe said it is “reasonable to expect an extended period of low interest rates” which has pushed rate expectations to a record low, supporting further outperformance by the Australian bond market.

Key Quotes

“The Governor said it is unlikely interest rates will go higher “until we are confident that inflation will return to around the midpoint of the target range”. We read this as conditional forward guidance, though the Governor was not inclined to use that term.”

“One other thing of note was the Governor’s focus on the risks being around the boost to credit growth rather than the possibility that lower interest rates in themselves might be counterproductive.”

“The additional stimulus flowing from the drop in term rate expectations reduces the prospect of a follow-up rate cut in August.”

“Next week, June quarter CPI will be released, and some post rate-cut and post-election data will help signal whether the second half of the year will shape up to be more economically solid than the first. All will feed into our forecasts for the RBA economic update and August rate decision. The decision by the US Fed may also matter.”