The Reserve Bank of Australia (RBA) will deliver its first interest rate decision of 2017 today.
While almost nobody thinks that the cash rate will move from its current level of 1.5%, there’s still likely to be plenty of interest in the accompanying monetary policy statement, particularly as it arrives just four days before the bank will offer updated forecasts for inflation and economic growth in its quarterly statement on monetary policy.
Here’s the state of play.
- It’s highly likely that the cash rate will be left at 1.5% for a fifth consecutive meeting today.
- 24 of 25 economists polled by Bloomberg expect rates to remain unchanged while cash rate futures put the odds of a 25 basis point rate cut at just 3%.
- With rates likely to remain unchanged, all focus will likely be on the accompanying monetary policy statement released by RBA governor Philip Lowe.
- In particular, there’s likely to be plenty of attention on the bank’s assessment towards the domestic economy and the outlook for inflation.
- When the board last met in December, it said “the economy is continuing its transition following the mining investment boom” with “some slowing in the year-ended growth rate likely, before it picks up again”.
- On inflation, it said that it “remains quite low” with it “expected to remain low for some time, before returning to more normal levels”.
- Since the RBA’s last meeting, held on December 6, Australian Q3 GDP contracted by 0.5% — the largest decline since the GFC — while underlying inflation remained subdued, growing by just 1.5% in the 12 months to December.
- Given the increased focus on financial stability under governor Lowe, markets will also be paying close attention to the banks’s view on recent developments in the housing and labour markets.
- Previously, the bank said that “labour market indicators continued to be somewhat mixed” with forward-looking indicators pointing to a “continued expansion in employment in the near term”.
- On housing, it said that conditions had “strengthened”, although they varied “considerably around the country”. It also said that prices were rising “briskly” in some markets.
- Given continued strength in Sydney and Melbourne property prices, coinciding with a re-acceleration in investor activity in these markets, it’s likely to be touched upon in the statement.
- Outside of those four key areas for policy consideration, there’s also likely to be interest on the bank’s take to Australia’s record trade surplus in December, along with the outlook for the global economy, particularly the United States and China.
- The bank is unlikely to alter its language on the Australian dollar, and is likely to provide a neutral policy bias in the final paragraph of the statement, as was the case in December.
- If there was a change in these areas, particularly the latter, it would have a significant impact on Australian financial markets.
The decision and monetary policy statement will be released at 2.30pm AEDT.
Business Insider will have full coverage as soon as it hits the screens.
I’m David Scutt and you can follow me on Twitter. I’ll be covering the RBA decision live.