Global easing could start Down Under with chance of RBA rate cut

Bloomberg

For the first time since Philip Lowe took the helm of Australia’s central bank in September 2016 there’s a real chance he may cut interest rates, making him the first in the developed world to do so this cycle.
Economists and markets are both split on whether the Reserve Bank will cut at Tuesday’s meeting, with the highest odds for a move since before the last easing in August 2016. While subdued prices make it tough for the inflation-targeting Reserve Bank to resist action, an election in less than two weeks might encourage policy makers to hold off until June.
“It’s a close call,” said Tom Kennedy, an economist in Sydney at JPMorgan Chase & Co. “The deterioration in core inflation, in our view, warrants a more immediate policy response.” Kennedy is one of 15 economists surveyed by Bloomberg who expect the cash rate to be cut to a record-low 1.25 percent on Tuesday, while the other 14 are either on hold or expect the RBA to wait until later in the year.
Australia’s three-year bond yield fell below 1.25 percent on Monday as the revival of trade war fears further boosted the chances of a cut by giving central banks even more reason to turn dovish. It’s now more than 25 basis points under the RBA benchmark for the first time since Aug. 2, 2016 — the day Australian policy makers last eased.
A reduction would be a rapid reversal for Lowe. In December he was predicting the next move would be the first tightening since 2010; by February, he was saying risks between a hike and a cut were evenly balanced. What changed was a sharp slowdown in growth in the second half of last year, a pattern replicated in a number of developed economies. But what continues to confound policy makers is that this is all occurring while hiring remains strong.
And it’s not just developed economies being forced to consider easing. The Reserve Bank of India lowered interest rates twice this year and the Philippines is expected to cut on Thursday.