I am marginally in favour of a cut in the cash rate because of the relatively weak outlook. My focus this month is on the following: - Commodity prices remain depressed, and this problem will not change soon. - The Commonwealth budget in May is likely to feature consolidation proposals.
- The US economy has temporary slowed its growth in the winter quarter, and the Federal Reserve is unlikely to raise its funds rate until at least later this year. - The increasing risk of failure of the negotiations on Greek sovereign debt is a threat to financial market stability in Europe and beyond. - CPI inflation in Australia for the March quarter is (temporarily) very low at 1.3% largely due to falling fuel costs. - Wages, vacancy and employment growth remain modest in Australia. - House price inflation may be a risk (mainly in Sydney), but this is investor-led and thus likely to encourage construction activity. Overall, I think the RBA has the scope to cut the cash rate this month, and possibly again later in the year. If next year’s circumstances warrant it, normalization of the cash rate can then begin from a lower base.