Despite sluggish activity, RBA will only cut in May

With Australian Q3 GDP data underperforming expectations, markets now think the RBA could begin its easing cycle as soon as April. To be sure, it is certainly the case that private demand showed few signs of life last quarter. However, with timely data pointing to a decent pickup in household spending in Q4, the RBA may not throw in the towel on its hopes for a consumer rebound just yet. Moreover, with weak productivity constraining the economy's speed limit, the Bank will likely want to see further evidence that price pressures are cooling in earnest. The upshot is that we still believe the first rate cut will come only in May.