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