The Reserve Bank of Australia (RBA) will deliver its June interest rate decision later this afternoon.
With markets nor economists expecting a change in rates today, all attention will yet again fall on the bank’s accompanying monetary policy statement, particularly the tone offered towards Australia’s labour and housing markets, the outlook for economic growth, along with the inflation outlook.
Here’s the state of play.
- In what’s becoming a familiar trend, no one expects that the cash rate will shift from 1.5% today.
- Of the 24 economists polled by Bloomberg, all expect that rates will be left on hold.
- Financial markets share that view with futures pricing in a 100% probability that the cash rate will remain at 1.5%.
- With a rate change off the table, all of the interest will be on the bank’s commentary on housing, the labour market and the inflation outlook in its accompanying monetary policy statement.
- On housing, the bank previously said that conditions “continue to vary considerably around the country” with prices “rising briskly in some markets and declining in others”. It also noted that “growth in housing debt has outpaced the slow growth in household incomes”, acknowledging that measures introduced by APRA should “help address the risks associated with high and rising levels of indebtedness”.
- Recent data on house prices, auction clearance rates and housing credit growth have all softened since the board last met, although its unlikely to be enough to see the board express increased confidence that housing market risks have reduced, at least not yet. More time is required on that front.
- After another solid jobs report for April and further lift in job advertisements in May, the board may strike a more optimistic tone on the current strength in the labour market.
- Previously it said that indicators on the labour market were “mixed”, acknowledging that the unemployment rate had “moved a little higher” while “employment growth had been “a little stronger”.
- Recently the unemployment rate has fallen with employment growth remaining strong.
- Given ongoing strength in other labour market indicators, it’s likely to repeat that “forward-looking indicators still point to continued growth in employment over the period ahead”, fitting with its prior view that the “unemployment rate is expected to decline gradually over time”.
- It’s also likely to repeat that wage growth will remain slow “for a while yet”, a fact reinforced by slow growth in employee wages paid in the March quarter of this year, according to business indicators released by the ABS on Monday.
- Given the proximity to the release of Australia’s Q1 GDP report on Wednesday, and the likelihood that growth will decelerate sharply from the final quarter of last year, the board may touch upon this within today’s statement.
- If that does occur, the interest will be on whether it sees the slowdown as temporary or part of a longer-lasting trend. If past form is anything to go by, it’s likely to be the former.
- Previously it said that growth is “expected to increase gradually over the next couple of years to a little above 3%” with “the drag from the decline in mining investment coming to an end and exports of resources picking up”. It also noted that “growth in consumption is expected to remain moderate and broadly in line with incomes” while a stronger pickup in non-mining investment “would be welcome”.
- Given recent data, the risks to the bank’s growth forecasts appear to be slanted to the downside at present.
- The bank’s assessment on the economic outlook will also feed into its inflation outlook. Previously it said that a “gradual further increase in underlying inflation is expected as the economy strengthens”.
- Markets will be alert to any change in this assessment, although it’s unlikely to happen today.
- The board is likely to leave its assessment on the global economy largely unchanged from that presented in April, although it’s likely to mention softer headline inflation readings, lower global bond yields and the shift in market sentiment towards the outlook for monetary policy since it last met, particularly in the eurozone.
- While there’s likely to be some tweaks, the board is once again likely to deliver a neutral bias in the final paragraph of the statement, fitting with the view that rates are unlikely to move for the foreseeable future.
- In May it said that holding the stance of monetary policy unchanged would be “consistent with sustainable growth in the economy and achieving the inflation target over time”. That’s likely to be repeated today.
The statement will be released at 2.30pm AEST.
Business Insider will have all the tweaks and talking points once it hits the screens.
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