BOAML: Don't expect much from tomorrow's RBA meeting

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Having cut interest rates to the lowest level in history at its previous meeting in May, markets shouldn’t expect too much from the RBA’s June monetary policy meeting tomorrow.

That’s the view of Bank of America-Merrill Lynch’s Australian economist Alex Joiner who believes “rates will be on hold and there will be no material changes to its (the RBA’s) communications”.

Here’s Joiner on what to expect from the RBA, both tomorrow and in the period ahead. While he notes the horrible business CAPEX figures released last week may have disappointed the RBA, they will “likely reserve judgment, and resist commenting, on the broader investment outlook until seeing additional activity data and consulting the business sector via its liaison program”.

“We expect the RBA to maintain a soft easing bias for some time. But this will likely be implied by the commentary on the outlook rather than any forward guidance which the RBA now could tell us will no longer be forthcoming. This in itself likely says something about how uncertain the economic outlook itself is. And it seems clear to us that the RBA is wary of getting ‘boxed in’ to any particular course of action.”

The chart below shows the evolution in cash rate expectations for Australia, looking back six months, a month ago and as of Friday last week. This morning cash rate futures put the probability of the cash rate falling to 1.75% in August at around 50%.

While Joiner may well be correct about the RBA adopting a “soft”, implicit easing bias in its statement tomorrow, having inserted an explicit easing bias in its March statement after cutting interest rates in February, any sign of reluctance to take the cash rate lower may result in short-term support for one of the thorns in the RBA’s side — the Australian Dollar.

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