The Reserve Bank of Australia (RBA) will announce its August interest rate decision later this afternoon.
While no one expects that rates will change today, there’ll still be plenty of interest in the accompanying monetary policy statement, especially with the RBA set to release updated forecasts for Australian economic growth, inflation and unemployment later in the week.
Throw in heightened speculation about what the bank may or may not say in relation to the Australian dollar, something that has soared since the bank last met on July 4, and it all but ensures that the statement will generate some volatility across Australian financial markets following its release.
The only real question is by how much.
Here’s the state of play.
- As has been the case for the best part of year, no one expects that interest rates will change today.
- All 22 economists polled by Bloomberg expect the cash rate to remain at 1.5% while futures markets put the odds of a rate movement in either direction at 0%.
- Given that view, it means that all attention will fall on the accompanying monetary policy statement, particularly what the bank has to say in relation to Australia’s labour and housing markets, the outlook for inflation and economic growth, as well the current level of the Australian dollar.
- In reality, it’s the latter that will get most focus today given a wide variety of views on whether the RBA will voice displeasure at the currency’s recent strength.
- When it last met in July, the bank merely said that “the depreciation of the exchange rate since 2013 has assisted the economy in its transition following the mining investment boom”, adding that “an appreciating exchange rate would complicate this adjustment”.
- In the past two weeks RBA governor Philip Lowe and deputy governor Guy Debelle have both stated that it would be helpful if the Australian dollar was a bit lower than its current level.
- Whether that will translate to a specific change in the bank’s commentary on the Aussie remains a hot talking point across markets. Some think the bank will express some concern about its recent strength while others believe it’ll maintain the status quo.
- Outside of the Australian dollar, markets will also be watching for any tweaks in relation to the outlook for economic growth and inflation given the proximity to the release of updated economic forecasts from the RBA on Friday.
- Indeed, if recent history is anything to go by, the RBA will use today’s meeting to flag any potential changes to its forecasts in its quarterly Statement on Monetary Policy (SoMP).
- In July, the bank said the Australian economy “is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete”.
- And, on the inflation outlook, it noted that “inflation is expected to increase gradually as the economy strengthens”.
- There’s likely to be greater discussion on inflation in today’s statement given Australia’s June quarter consumer price inflation (CPI) report was released last week.
- Although the headline CPI figure was weak, the bank may mention that underlying inflation was broadly in line with the forecasts it offered in its May SoMP.
- Related to the inflation outlook, there’s a reasonable chance that the bank may offer a more optimistic assessment on current labour market conditions given strength in recent data.
- In its July statement it said that “indicators of the labour market remain mixed” with forward-looking indicators pointing to “continued growth in employment over the period ahead”. It also said that wage growth remains “low and this is likely to continue for a while yet”.
- On Australia’s housing market — the other big area for policy deliberations in mid-2017 — the bank is likely to maintain a similar view to that offered a month ago given very little has actually changed.
- Conditions still “vary considerably around the country” with prices rising “briskly” in some markets but “declining” in others. While there has been an acceleration in some house price measures recently in Australia’s hottest housing markets, the bank is likely reaffirm that there signs that “conditions are starting to ease” given recent weakening in housing credit, new home sales and auction clearance rates.
- It’s also likely to maintain the view that “recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness”.
- As it has now done since it last cut rates one year ago, the bank will almost certainly retain a neutral policy bias in the final paragraph of the statement, reinforcing the view that rates are going nowhere fast.
- The phrase that “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” is likely to be repeated word-for-word.
The RBA will release its August policy statement at 2.30pm AEST.
Business Insider will have all of details and talking points once it hits the screens.