RBA to Hold Rates, Trend Dovish

  • Monday, February 6, 2017

The Reserve Bank of Australia is likely to hold rates and provide a dovish signal in its meeting on February 7.

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With inflation persistently below target, dovish* momentum** (-0.89), and tension growing (seemingly out of nowhere) between Australia and the U.S., the RBA would be justified in cutting rates on February 7. That said, communication has been sparse recently, and, prior to near radio silence, policymakers expressed concern about inflated real estate prices—making a rate cut unlikely this week. Instead, we anticipate a dovish statement signaling a strong possibility of a rate cut in the coming months.

The Prattle Team

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Prattle Scoring System_Residuals_cropped

* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as the basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness. Aggregate trend is the overall sentiment of the bank calculated using a LOESS fitting of trend using a 12-month window.

** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications. Momentum is the average of the last ten residual scores.

Disclaimer: the forecasts provided herein are based upon sources believed by Prattle Analytics, LLC D/B/A Prattle, to be reliable and to be developed from models which are generally accepted as methods for producing economic forecasts.

Prattle cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice.

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