The Reserve Bank of Australia (RBA) will announce its April interest rate decision later today.
Given it’s not been all that long since the RBA’s March policy meeting was held, few expect there’ll be any significant changes in today’s post-meeting statement, let alone a movement in the cash rate.
However, while that’s the prevailing view among economists, given the Reserve Bank of New Zealand surprised many late last month by signalling it may cut rates again, markets will be on alert for a similar switch in tone from the RBA today.
As things currently stand, financial markets are still close to fully priced for not only one but two 25 basis point cuts to Australia’s cash rate by the middle of next year.
Here’s the state of play.
- Few expect the RBA will move Australia’s cash rate today.
- 29 out of 30 economists polled by Bloomberg forecast that it will remain at 1.5%, the level it has been since August 2016. Stephen Koukoulas of Market Economics expects a decline of 25 basis points to 1.25%.
- Financial markets are pricing in a negligible 2% chance of a 25 basis point reduction.
- In the accompanying monetary policy statement, most interest will be on the final paragraph where the RBA typically outlines its bias on the outlook for the cash rate.
- In March, the Board said in that “holding the stance of monetary policy unchanged… would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
- Most expect that line will be retained on this occasion, implying a neutral outlook on the future direction of the cash rate.
- However, the RBNZ surprised markets in March, moving from a neutral to easing bias, indicating that New Zealand’s cash rate could be reduced further.
- While a different economy and different board, the switch from the RBNZ has markets on alert for a similar move from the RBA, especially given so many now expect Australia’s cash rate will be reduced in the months ahead.
- If the RBA is to signal a change in tact, it will likely alter its view that “further (gradual) progress in reducing unemployment and having inflation return to target is expected”. That line was used in the final paragraph of the March policy statement.
- Underlining why so few expect this move will occur today, if at all, the key Australian jobs market indicators watched by the RBA still point to lower unemployment in the period ahead.
- Australia’s unemployment rate fell to 4.9% in February, leaving it at the lowest level in eight years. Job vacancies, as measured by the ABS, also rose to the highest level on record in February, pointing to firm hiring in the period ahead. This measure has been constantly referred to by the RBA to explain its outlook for the unemployment rate.
- In the absence of an unexpected shift to an easing bias from the RBA, the rest of the statement, including commentary on the domestic economy, housing market, inflation outlook and recent developments in the global economy and financial markets, is likely to be much the same as March.
- That partially reflects that it has only been four weeks since the RBA Board last met, with much of the data received during this period merely continuing the trends seen in prior months. As such, any changes in the bank’s commentary are likely to be only cosmetic in nature.
The RBA policy statement, including the rate decision, will be released at 2.30pm AEDT. It will be followed five hours later by Australia’s federal budget that will be handed down at 7.30pm AEDT.
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