The Reserve Bank of Australia (RBA) will announce its July monetary policy decision later this afternoon.
While everyone thinks rates will remain unchanged at 1.5% for a 10th consecutive meeting, it’s what the RBA will say, rather than what it will do, that will be of interest to markets today.
In particular, the question everyone wants answered is whether the RBA will turn hawkish in its monetary policy statement, mirroring the noticeable shift in tone from the European Central Bank, Bank of England and Bank of Canada in recent weeks.
It’s easy to see why there’ll still be so much interest in today’s decision, and why it has the potential to shift Australian financial markets significantly one way or another.
Here’s the state of play.
- No one expects that rates will move today. All 24 economists polled by Bloomberg have the cash rate remaining at 1.5%. Cash rate futures reinforce that view with a 0% probability assigned to a move in interest rates, either up or down.
- With a movement in rates seemingly off the table, all interest will fall on the accompanying monetary policy statement.
- On the labour market, the tone is likely to be more upbeat that than conveyed in June given continued strength in official data from the ABS and lead indicators such as skilled vacancies and job ads.
- Previously the bank said: “Indicators of the labour market remain mixed. Employment growth has been stronger over recent months, although growth in total hours worked remains weak. The various forward-looking indicators point to continued growth in employment over the period ahead.”
- However, if the RBA does strike a more optimistic tone, it’s unlikely to see the bank express a more confident view on the outlook for wages and inflation, at least not yet.
- In June it said: “Wage growth remains low and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens. Slow growth in real wages is restraining growth in household consumption.”
- While there have been some promising signs in the labour market, it will take some time for the bank to determine whether that will lead to stronger wage, inflation and household consumption growth.
- Continuing with that theme, its language towards to Australian housing market conditions is also likely to remain much the same.
- Previously it said that housing market conditions varied “considerably around the country” with prices in some markets rising “briskly” while there were some signs that “these conditions are starting to ease”.
- That, along with its assessment on apartment supply and financial stability risks, will likely remain much the same. Nothing much has changed on those fronts since the board last met.
- If there is to be a change, it may come from its assessment on rental rates given recent strength in data from CoreLogic and SQM Research. Previously the bank said that “rent increases are the slowest for two decades”.
- Despite recent strength, its view that a higher Australian dollar will “complicate” Australia’s economic transition is likely to remain intact. Since its June meeting, the Australian dollar has rallied by around 2.5% against both the US dollar and in trade-weighted terms, coinciding with a 20%-plus surge in iron ore prices since mid-June.
- The RBA’s view on domestic economic conditions are also likely to remain much the same, repeating the same optimistic tone offered in June. If there are to be any changes, it will likely reflect previous data points — such as Q1 GDP — moving further into the past.
- Internationally, most interest will be in relation to what the bank says on the monetary policy outlook from other major central banks.
- In June it said: “Further increases in US interest rates are expected over the year ahead and there is no longer an expectation of additional monetary easing in other major economies.”
- Given recent rhetoric from the European Central Bank, Bank of England and Bank of Canada, it’s clear that markets are no longer expecting further easing but rather tighter monetary policy in the period ahead.
- The RBA’s view that “the broad-based pick-up in the global economy is continuing” is also likely to be repeated, as will its assessment that “core inflation remains low”. It will likely mention the lift in global bond yields seen in recent weeks.
- While there is a small risk that the bank may turn hawkish, it’s still likely that the RBA will retain a neutral policy stance in the final paragraph of the statement, underlining that rates are unlikely to move in either direction in the near-term.
- Previously it said: “Taking account of the available information… 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 monetary policy statement will be released at 2.30pm AEST.
Business Insider will have all of the details as soon as it hits the screens.
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