VIEW: ANZ write "contrary to our expectation,...>

RBA: VIEW: ANZ write "contrary to our expectation, the RBA Board kept the cash

rate unchanged at its May meeting. This is despite downward revisions to the

RBA's assessment of growth & inflation. Likely key to this is the fact the RBA

is forecasting inflation to reach 2% by the end of '20 (previously 2.25%) and be

"a little higher after that." The anticipated rise in inflation to 2% comes

despite no change in the unemployment rate "over the next year or so" that seems

to contradict the Board's judgment in the final paragraph "that a further

improvement in the labour market was likely to be needed for inflation to be

consistent with the target." We'll have to wait for the details in Friday's SoMP

to see what generates this rise in core inflation. In our view there is very

little likelihood of a return to 2% inflation without a faster decline in

unemployment than the RBA currently forecasts. While we aren't particularly

bearish on the labour market, we think it will take more monetary stimulus to

deliver a lower unemployment rate. Hence we continue to expect the RBA to cut at

some point over the next 3 months, but with our call on the precise timing

dependent on both the data and more information from the RBA."