Here's why ANZ thinks the RBA will hold off on a rate cut today

The RBA releases its most highly-anticipated cash rate decision in more than a year today.

Some forecasters including Bill Evans at Westpac are calling for a cut below the current record-low 2.5% but others think the RBA, which doesn’t like to drop big surprises on the market, will make a change to its guidance that clears a path for a later cut.

In its Morning Focus note the research team at ANZ explains:

We think there’s a decent chance of a cut but on balance expect the RBA Board to hold off and flag a rate cut for next month (consistent with the Bank’s recent communication that predictable policy is the best way to support confidence). Either way, monetary policy will be eased in our view. We expect the Bank to alter its guidance, dropping ‘period of stability’ and inserting either ‘appropriate for the time being’ or ‘scope for easing’. In line with a new easing bias we expect the tone of the statement to shift slightly, focusing on lower inflation as a catalyst to reduce rates a little further. Only 6 of 27 surveyed forecasters are picking a cut today, but given market pricing there is some scope for disappointment and a bounce in the currency should the RBA not sound as dovish as expected.

A lot has moved since the RBA’s last official cash rate decision. The Aussie dollar has fall from around 84c in early December to below 78c now – a huge fall that should stimulate exports. The oil price has continued to slide, which while dragging on headline inflation should be providing a bit of a fillip to consumer spending – although there’s not yet much evidence of this happening. And central bankers everywhere are moving to keep their currencies low.

If the RBA doesn’t cut, how it positions any change to the long-standing view that a “period of stability” in rates is warranted, as well as adjustments to its inflation and growth outlooks, will be the focus of the market.

We find out at 2.30pm, Sydney time.

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