Last week, China was formally welcomed into the monetary easing dance party. Previously, the People's Bank of China (PBOC) had taken tentative steps, but with the 100 basis point cut in the reserves requirement ratio (RRR), China officially took to the monetary easing dance party floor. Make no mistake, this represents an aggressive policy move by the PBOC, despite comments to the contrary. Currently, the US remains the only missing participant, but with the release of further soft data over the weekend and last night, the Federal Reserve is dancing only just outside the party door.
The case for an RBA cut
Locally, there has been much speculation on the timing of the next domestic rate cut. Following the RBA's decision to leave the cash rate unchanged in April, the market is now pricing in a 56% chance of a 25 basis point cut in May, compared to 80% just two weeks ago. Just last week, a major bank became the first to officially tip 'no 25 basis point cut' in the cash rate in May. Indeed, there is some speculation that we are at the low point of the cycle. Personally, I believe the RBA remains committed to at least one more rate cut this year. I continue to forecast a 25 basis point rate cut in May before the Federal Budget.