The Reserve Bank of Australia (RBA) will announce its October interest rate decision later today.
With next to no chance the cash rate will change, all attention will once again be on accompanying monetary policy statement released by Governor Philip Lowe. Given its been less than a month since the RBA last met, and with limited new information on the key areas of inflation and wage growth released during this period, there’s unlikely to be widespread changes in the RBA’s views.
However, while it all points to another non-event for markets, should there be any change in RBA’s assessment, it could easily lead to a short-term bout of volatility given extremely low investor expectations.
Here’s the state of play.
- No one expects the cash rate will change today. All 25 economists polled by Bloomberg forecast it will remain at 1.5%. Cash rate futures also price no chance of a move in either direction.
- While few expect widespread changes in the accompanying monetary policy statement, there may be some small tweaks to the bank’s views on mortgage rates, the labour market as well as the outlook for the Australian economy.
- Given several major banks delivered out-of-cycle mortgage rate increases following the RBA’s September meeting, the bank may change its view that “the average mortgage rate paid is lower than a year ago”.
- Previously it said that “some lenders have increased mortgage rates by small amounts”, adding that while domestic money-market interest rates were “higher than they were at the start of the year, they had declined somewhat since the end of June”. The latter remark, despite a recent uptick in wholesale funding costs, is still factually correct.
- The RBA is likely to retain its view that the “outlook for the labour market remains positive”. Since it last met, employment surged in August leaving the unemployment unchanged at 5.3%, the lowest level in close to six years.
- Given further progress in lowering underemployment and underutilisation in the labour market over the past three months — two areas many believe are crucial in helping to boost wage pressures — the bank may strike a more optimistic tone when it comes to the outlook for wage growth.
- In September, it said that while wage growth “remains low… it has picked up a little recently”. “The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process,” it said.
- Despite a slower increase in job vacancies in the past quarter, it will likely retain the view that “the vacancy rate is high and there are reports of skills shortages in some areas”.
- On Australia’s economic outlook, the RBA will likely note that GDP growth was stronger-than-expected in the June quarter, an outcome that should see it retain the view that its “central forecast is for growth of the Australian economy to average a bit above 3% in 2018 and 2019”.
- Even with growth in the June quarter powered by household spending, it’s doubtful the bank will drop its assessment that “one continuing source of uncertainty is the outlook for household consumption”, especially as retail sales were weak in July.
- Despite continued weakness in most housing indicators, including house prices, its views on the property market are likely to remain much the same.
- Previously it said “conditions in the Sydney and Melbourne housing markets had continued to ease and nationwide measures of rent inflation remain low”.
Given recent data released by CoreLogic revealing home prices are now falling in most parts of the country, it could acknowledge that conditions are now easing in more individual markets, rather than just Sydney and Melbourne.
- With the Australian dollar remaining near the lowest levels in several years both against the greenback and in trade-weighted terms, its views on the currency are likely to be the same. Last month it noted that it remained “within the range that it has been in over the past two years on a trade-weighted basis, but it has depreciated against the US dollar along with most other currencies”.
- Given little new information over the past four weeks, its views on the outlook for inflation are likely to remain unchanged ahead of the release of Australia’s Q3 CPI report at the end of this month.
- Its assessment that the “global economic expansion is continuing” is likely to be retained, even with “ongoing uncertainty regarding… the direction of international trade policy in the United States”.
- Given the lack of new information or news since the RBA last met, the bank will almost certainly retain a neutral bias on the outlook for policy settings in the final paragraph of the statement.
- “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual,” the bank said last month. “Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
- Those views are unlikely to change.
The RBA monetary policy statement, including the interest rate decision, will be released at 2.30pm AEST.
Business Insider will have all of the talking points — if there are any — once it hits the screens.
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