The Reserve Bank of Australia (RBA) will announce its November interest rate decision later today.
While no one expects that rates will change, there’ll still be plenty of interest in the accompanying monetary policy statement, especially following a raft of weak reports on Australian retail sales, inflation and house prices released since the board last met on October 3.
Adding extra intrigue to today’s statement, it arrives just days before the RBA will release updated forecasts for Australian economic growth, inflation and unemployment in its quarterly statement on monetary policy, providing an opportune time for the bank to soften the markets up for any potential changes that may occur.
There’s likely to be a few, particularly in relation to inflation, a key policy focus of the RBA.
Here’s the state of play.
- While November has been a month where interest rates have moved frequently in the past, no one expects that trend will continue today.
- Of the 27 economists polled by Bloomberg, all expect the cash rate will remain steady at 1.50%.
- Financial markets are equally unenthusiastic about the potential for a rate change, putting the possibility of a 25 basis point move in either direction at less than 5%.
- While that suggests today’s release will be a non-event, given its proximity to the release of the RBA’s quarterly statement on monetary policy (SoMP) on Friday, there’s likely to be heightened interest in the accompanying monetary policy statement.
- In particular, there’s likely to be plenty of interest in what the bank has to say on inflation following weakness in Australia’s September quarter consumer price inflation (CPI) report released in late October.
- In its previous statement, the RBA said inflation “remains low and is expected to pick up gradually as the economy strengthens”.
- Given the balance of risks, particularly following the release of updated CPI basket weightings from the ABS earlier this week, the RBA may flag a slower-than-expected lift in inflationary pressures in today’s statement.
- Aside from the inflation outlook, the other area of the statement that will be scrutinised heavily will be the bank’s assessment on the outlook for household spending.
- In October it noted that “slow growth in real wages and high levels of household debt are likely to constrain growth in household spending”.
- Since it last met, retail sales fell 0.5% in August and were flat in September, seeing spending fall by 0.3% over the September quarter, the weakest result in seven years.
- Given this weakness coincided with higher electricity, gas and petrol prices, along with a slowdown in house price growth, the RBA may point to these as additional headwinds impacting on spending levels.
- Despite concerning trends from the household sector, the RBA will likely maintain an optimistic assessment on the outlook for economic growth given recent strength in building approvals and trade data.
- When it last met it said “growth in the Australian economy will gradually pick up over the coming year”, pointing to “consistent signs that non-mining business investment is picking up” and “a large pipeline of infrastructure investment”.
- Its assessment on labour market conditions is also likely to be much the same as that communicated in October.
- Previously it said employment “continued to grow strongly” with forward-looking indicators continuing to point to “solid growth in employment over the period ahead”.
- It also noted that despite recent employment strength, unemployment is “expected to decline only gradually over the next couple of years“.
- Given that assessment, it will likely repeat that “stronger conditions in the labour market should see some lift in wage growth over time”.
- On the housing market, the board will likely deliver a more dovish assessment given recent weakness in house price data and auction clearance rates.
- In October it said prices in some markets had risen “briskly” but had declined in others. It also noted there had been “further signs that conditions are easing” in Sydney’s housing market.
- That assessment may extend to other markets in today’s statement.
- Given recent housing credit data, the line that “growth in housing debt has been outpacing the slow growth in household incomes for some time” will likely be repeated.
- On the Australian dollar, the statement will likely reflect recent weakness in the currency which has fallen by 2% against the US dollar and in trade-weighted terms since the board last met in early October.
- However, it will likely repeat that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”
- If the RBA was to water down this warning, it would be only to encourage renewed buying in the Aussie — not exactly a desirable outcome given ongoing weakness in tradable inflationary pressures.
- Outside of acknowledging recent monetary policy changes from the Bank of England and European Central Bank, its assessment that “conditions in the global economy have improved” will likely be repeated.
- Finally, the RBA will almost certainly retain a neutral policy bias in the final paragraph of today’s statement, signalling that interest rates are likely to remain unchanged for the foreseeable future.
- “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,” the bank said in October, adding that “the low level of interest rates is continuing to support the Australian economy”.
The RBA monetary policy statement, including its interest rate decision, will be released at 2.30pm AEDT.
Business Insider will have all of the details as soon as it hits the screens.
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