Today the Reserve Bank of Australia will hold its eleventh and final monetary policy meeting of 2016.
While no one expects that the board will move interest rates, making the meeting meaningless for some, there’s still likely to be plenty of interest on the wording of the accompanying monetary policy statement, potentially providing clues as to where interest rate may sit in the year ahead.
Here’s the state of play.
- No one expects that rates will move today. All 26 economists polled by Bloomberg have the cash rate remaining at 1.5% while financial markets ascribe just a 2% chance of a 25 basis point rate cut arriving this afternoon.
- Given these expectations, all of the interest will be on the wording of the accompanying monetary policy statement.
In particular, markets and economists will be zeroing in on the language used towards to the housing and labour markets, as well as the outlook for inflation.
- On housing, markets will be paying attention to the language used to describe recent price developments, with some hefty gains being recorded in all capital cities aside from Melbourne.
- In light of recent building approvals data which have fallen sharply, the board may also tweak its view that a “considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities”.
- There has also been a noticeable acceleration in housing loans and credit to investors in recent months.
- On the labour market front, it’s likely that the board will continue to describe recent indicators as “somewhat mixed”. Job ads have started to accelerate while employment growth is heading in the opposite direction.
- Finally, on inflation, it’s hard to see the board changing the view expressed in November when it said “inflation remains quite low” and “is expected to remain low for some time”.
- This is likely to have been reinforced by the latest wage price index which recorded the slowest annual increase on record in Q3.
- Outside of housing, the labour market and inflation outlook, there could be changes to the board’s view on domestic economic conditions, the Chinese and US economies and the outlook for commodity markets given recent information.
- The final paragraph of the statement in which the board communicates its bias on interest rates, essentially where they’re more likely to head in the future, is likely to remain neutral.
- In November, it said that “taking account of the available information, and having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
- For a recap as to what the board communicated in November, here’s the full monetary policy statement.
The decision will arrive at 2.30pm AEDT.
Business Insider will have full coverage as soon as the decision drops.
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