VIEW: CBA write "a discussion of scenarios......>

RBA: VIEW: CBA write "a discussion of scenarios that would ultimately lead to a

rate cut was no doubt on the table after the downside surprise in the Q1

inflation readings. But, in the language of economists, a low inflation outcome

was a "necessary" but not "sufficient" condition for a rate cut. The RBA has

always been careful to tie the direction of interest rates to the unemployment

rate as well. Along with low inflation, the RBA wants to see how the labour

market evolves. The post meeting Statement was no exception. The RBA has upped

the labour market ante by noting that "a further improvement in the labour

market was likely to be needed for inflation to be consistent with the target".

At the same time they characterise the labour market as "strong". And they still

expect the unemployment rate to edge lower to 4.75% in '21. The no-change

decision should be benchmarked against that backdrop. The RBA has been very

tolerant of sub-target inflation. The inflation rate has been below the RBA's

2-3% target for 16 of the past 18 quarters. Indeed the RBA has made something of

a virtue of tolerance by noting, since May 2018, that it is "appropriate to hold

the cash rate steady and for the Bank to be a source of stability & confidence."