The Reserve Bank of Australia (RBA) is about to announce its final interest rate decision for 2017.
Like the 10 meetings before it, the RBA will almost certainly keep the cash rate steady at 1.5%, meaning all attention yet again will be on the content of its December monetary policy statement.
And given the data flow seen since it last met on November 7, even that’s likely to be fairly similar with confidence towards the business sector and labour market likely to be offset by continued uncertainty on the outlook for household consumption.
Here’s the state of play.
- No one expects that interest rates will change today. Of the 26 economists polled by Bloomberg, all forecast that the cash rate will remain at 1.5%. Futures traders are equally unenthusiastic about the prospect for change, ascribing a 0% chance of a movement in either direction.
- As has been the case at every meeting this year, that means all attention will yet again be on the tone of the accompanying monetary policy statement, particularly towards business investment, the labour and housing markets, the outlook for the household sector and recent movements in the Australian dollar.
- Given recent economic data and the relatively short turnaround from the bank’s November meeting, there’s unlikely to be substantive changes.
- On the business sector, it’s likely that the bank will retain an optimistic assessment given recent readings on business operating conditions and investment.
- In November, it said that “conditions are positive and capacity utilisation has increased”, adding that “the outlook for non-mining business investment has improved, with the forward-looking indicators being more positive than they have been for some time”.
- Given ongoing strength in labour market indicators such as the ANZ job ads series, it’s likely to express confidence on the outlook for hiring and wage growth.
- Previously it said the labour market had “continued to strengthen” with various forward-looking indicators continuing to point to “solid growth in employment over the period ahead”.
- On wages, an area that continues to undershoot the bank’s forecasts despite tightening labour market conditions, it said that low wage growth will likely “continue for a while yet”, although it said that stronger labour market conditions “should see some lift in wage growth over time”.
- It’s hard to see those views changing substantially in today’s statement given the data flow seen over the past four weeks.
- Despite ongoing strength in employment, its view that “one continuing source of uncertainty is the outlook for household consumption” is likely to be retained. Of all the components within today’s statement, markets are likely to be most sensitive to the bank’s tone towards the household sector.
- The bank’s assessment on the housing market is also likely to be largely unchanged given continued soft readings on housing finance, auction clearance rates and house prices.
- Previously it said that “conditions have eased further in Sydney” with prices showing “little change over recent months” with the exception of Melbourne where they “are still increasing”.
- It will likely repeat that a “considerable additional supply of apartments is scheduled to come on stream over the next couple of years”, especially with recent building approvals data suggesting that the downturn seen earlier this year may be in the process of bottoming out.
- The bank may make specific mention to the recent resilience in approvals data as a reason for optimism on the outlook for residential construction and GDP growth.
- Despite recent declines in the Australian dollar, it’s likely the bank will again warn that a higher exchange rate “would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
- Given there’s unlikely to be any substantive changes elsewhere in the statement, any watering down of this statement will see a sharp rally in the Australian dollar.
- With little in the way of new economic data, it will likely repeat that inflation is “likely to remain low for some time, reflecting the slow growth in labour costs and increased competitive pressures, especially in retailing”. It’s view that inflation is expected to “pick up gradually as the economy strengthens” is also likely to be repeated.
- Given persistent uncertainty on the outlook for the household sector, keeping the bank’s enthusiasm towards the business sector and labour market in check, the RBA will almost certainty deliver a neutral interest rate bias in the final paragraph of today’s statement.
- In November it said the “low level of interest rates is continuing to support the Australian economy”, adding that “holding the stance of monetary policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
The RBA December monetary policy statement, including the interest rate decision, will be released at 2.30pm AEDT.
Business Insider will have all of the details once it hits the screens.
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