Morgan Stanley on the Reserve Bank of Australia
RBA will cut rate to 1% in this cycle
- In order to avoid disinflation
- To assist with transition in the economy and sharemarket
- To deal with the end of the household leverage boom and as the commodity super-cycle unwinds
More:
- RBA may pause at 1.50% after another 50bps adjustment
- Holding pattern to last six months
- Next 50bps of cuts in 1H17
- Drag of a slower housing market to become more apparent
- Forecasts unemployment rising back toward 6.5% over 2016-17
- Housing slowdown to play out through activity and weaker consumption
- MS sees end 2016 underlying inflation to 1.4% from 1.8%
- 4Q17 2.0% (from 2.3%)
- Disinflationary forces:
- regional excess capacity on tradeables
- Sustained weakness of unit labor costs
- Emerging oversupply of dwellings on rent
- Continued competitive dynamics on food/staples prices