«The growth outlook in particular has deteriorated since November, something the RBA will likely give a further nod to in February. We have seen some signs of softer consumer spending; more pronounced falls in building approvals and housing markets; and deterioration in the global economic and markets back-drop.
«There’s not that much that has been moving in the other direction, although unemployment remains low, mining is recovering – as is non-mining capex – while defence and infrastructure are forecast to be strong. It’s likely the RBA will downgrade its growth forecast for 2019 and 2020.»
For its part, TD Securities said a rate cut this week «is a close call» and the board could opt instead to express «an explicit easing bias and pave the way for an August cut».
TD sees the bank revising down 2019 GDP growth by 0.5 of a percentage point and core CPI forecasts by 0.3 of a percentage point in Friday’s SoMP, justifying a cut to support growth.
ANZ is betting on a rate cut this week and the futures market is now pricing in a 37 per cent chance of 0.25 percentage point cut on Tuesday.
In a preview of this week’s RBA and RBNZ meetings, Bank of America Merrill Lynch said it expected the RBA to hold rates steady, even though weak inflation provides a window to cut.
«The RBA could easily justify a cut after surprisingly weak 1Q inflation data,» BofAML said. «However, we think it is more likely to wait as policy guidance is evolving gradually and there is a period of assessment under way to gauge growth and labour demand.
«The core inflation miss was not so far from forecasts. We also presume the bank would prefer, if possible, not to politicise monetary policy the week before the 18 May federal election. Fiscal policy is set to become more expansionary, whoever wins.»
However, BofAML expects the RBNZ to cut rates to 1.5 per cent this week.
«We think a rate cut in NZ is more likely because the RBNZ shifted to an explicit easing bias in March.
The central bank said that «given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down».
BofAML believes «there is a stronger argument for a move [this] week considering the near-recessionary level of business confidence that threatens hiring and investment, and a preference for weaker financial conditions.»
Wealth Within’s Dale Gillam also sees no need for the RBA to rush.
«It’s highly likely we could see an interest rate cut» this week, Mr Gillam said. «Prior to our last federal election, the RBA cut rates on the basis of global growth figures and lower inflation levels.
«Interestingly, this is quite similar to the situation we currently face with inflation at lower than expected levels and strong performance in the global markets.
«That said, with a fragile housing market and fair bit of political uncertainty, I believe it would be wise for the RBA to hold interest rates right now.»
Timothy Moore is an online editor. He also writes on monetary policy, equities, commodities and currencies.