Following the RBA’s decision to lower the cash rate to a record-low level of 2% in May, the board will announce its June monetary policy decision later on this afternoon.
Here’s the state of play.
- There is close to zero chance the RBA will lower the cash rate in June, at least according to market pricing. Cash rate futures put the odds of a 0.25% reduction at just 4%.
- This sentiment is mirrored by the economic community with every leading economist predicting the cash rate will remain unchanged.
- The question today is whether the RBA will indicate that they are likely to reduce the cash rate further later in the year.
- In March, following a rate reduction in February and the release of a weak quarterly CAPEX report, the RBA adopted an explicit easing bias, noting in its statement “further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target”.
- Given the similarities between the March meeting and today, interest rates were cut in May and the Q1 CAPEX report was weak, some in the markets believe the RBA will insert a similar explicit easing bias into its policy statement today.
- However, this sentiment is not unilateral across financial markets. Some analysts predict an implicit easing bias will be used by the RBA, suggesting rates will move lower without saying it definitively, or no bias at all — that is, a neutral bias.
- Which way the RBA decides to go will be communicated in the final paragraph of the policy statement. This, in all likelihood, will be the most crucial part of the document.
- The insertion of an explicit easing bias is likely to pressure the Australian Dollar. Anything other than this will likely support the currency, particularly in the unlikely scenario that the RBA adopts a neutral bias.