The Reserve Bank of Australia’s (RBA) March interest rate decision will be released later today.
As has been the case since the bank last moved the cash rate back in August 2016, there’s very little probability of a change occurring today.
That means all attention will once again be on the tone of the accompanying monetary policy statement, particularly what the bank has to say on the outlook for Australian economic growth, the domestic housing market, labour market conditions and it’s bias on the short-term direction of interest rates.
Here’s the state of play.
- Very little chance of a rate movement is seen today. All 26 economists polled by Bloomberg expect the cash rate will remain at 1.5%. Financial markets are thinking along similar lines, only ascribing a 2% chance that the cash rate will be reduced by 25 basis points to 1.25%.
- In the accompanying monetary policy statement, the RBA is likely to repeat that “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”, meaning steady policy “would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
- Any tweak to the wording of the key final paragraph would come as surprise, and would almost certainly indicate a greater probability that the cash rate could be lowered again given recent trends in Australian economic data.
- Ahead of Australia’s GDP report later this week, there’ll be plenty of interest on what the RBA has to say on the outlook for economic growth given another weak result is expected in the December quarter.
- In February, it said that its central scenario is “for the Australian economy to grow by around 3% this year and by a little less in 2020 due to slower growth in exports of resources”. Despite growing downside risks for Q4, and potentially Q1 this year, it will likely retain that view today.
- The bank will likely remain optimistic on the outlook for business investment and government infrastructure investment, the former helped by a reasonable lift in implied business CAPEX plans in the financial year ahead. Government demand figures for the December quarter of last year will arrive as the RBA Board is meeting.
- Despite optimism towards those parts of the economy, it will likely repeat that “some downside risks have increased”, especially uncertainty on the “outlook for household spending and the effect of falling housing prices in some cities”.
- While uncertainty remains, its view that growth in household incomes “is expected to pick up and support household spending” will likely remain.
- On labour market conditions, the bank will likely repeat that they “remain strong” given recent data on hiring and stability in Australia’s unemployment rate.
- Despite some divergence in recent leading labour market indicators, especially weakness in Australian job ads, it will likely repeat that vacancy rates are “high” with “reports of skills shortages in some areas”.
- As such, its assessment that a “further decline in the unemployment rate to 4.75% is expected over the next couple of years” will almost certainly be retained.
- Its view that wage growth will likely increase gradually “over time” will also be repeated following the release of Australia’s Q4 Wage Price Index in mid-February.
- On the housing market, its views are likely to be much the same as very little has actually changed. Prices are still falling in many capitals while credit growth and new housing finance remains weak.
- In February, the RBA noted “housing markets in Sydney and Melbourne are going through a period of adjustment, after an earlier large run-up in prices”, while “credit conditions for some borrowers are tighter than they have been”.
- If there is a change in the bank’s language today, it will likely convey a more pessimistic assessment of current and future conditions. Such a tweak is unlikely but still remains a risk.
- On the Australian dollar, terms of trade and the outlook for Australian inflation, the wording is likely to be similar if not unchanged from that used a month earlier. That’s because nothing much has really changed over this comparatively short period of time. The bank may note the recent lift in Australian commodity prices and the subsequent positive impact on Australia’s terms of trade.
- Internationally, the RBA’s view that economic growth “slowed in the second half of the year” is likely to be repeated. It may note a recent loosening of financial conditions and recent improvement in the tone of US-Sino trade negotiations.
- In February, it noted that “trade tensions are affecting global trade and some investment decisions”. Despite some easing of those tensions, it’s probably too early to change that view today.
- The bank will likely repeat that “headline inflation rates have moved lower due to the decline in oil prices”, although it will be interesting to note whether it still believes that “core inflation has picked up in a number of economies”.
The RBA’s March monetary policy statement, including the interest rate decision, will arrive at 2.30pm AEDT.
Business Insider will have all of the tweaks and ramifications, if any, once the statement is released.
Business Insider Emails & Alerts
Site highlights each day to your inbox.