The Reserve Bank of Australia (RBA) will announce its June interest rate decision later today.
Having left the cash rate unchanged for nearly two years, the longest stretch of policy stability on record, few, if anyone, expects that trend will change today.
However, it’s been well over a month since the RBA last met, providing plenty of data and news from home and abroad for the Board to mull over.
Abroad, uncertainty about the recent soft patch in global activity levels persists, as does trade tensions between the United States and other major nations.
However, despite heightened uncertainty and local data that has, from a broad perspective, been a little soft, seeing financial markets push back when they expect the RBA will begin to lift official interest rates, whether that will be enough to see the bank drop its half-glass-full outlook for the Australian economy remains debatable, especially as GDP growth in the March quarter appears set to pickup strongly.
We’ll find out the answer to that question later today.
Here’s the state of play.
- The cash rate has remained at 1.5% for 19 consecutive meetings, the longest stretch without a move in either direction on record.
- The last time the RBA moved the cash rate was in August 2016 — a decrease of 25 basis points. It hasn’t lifted interest rates since late 2010.
- Economists and financial markets are certain that interest rates won’t move today.
- Of the 21 economists polled by Bloomberg, all expect the cash rate will remain at 1.5%. Financial markets are equally convinced that rates will be left unchanged.
- That means all attention will be on the accompanying money policy statement, especially what the bank has to say on the outlook for Australian economic growth, the housing market, labour market conditions, along with wage and inflationary pressures.
- Given partial GDP indicators received so far, point to an acceleration in economic growth in the March quarter, the bank will likely retain the view that Australian GDP will “average a bit above 3% in 2018 and 2019”.
- In May, it said that business conditions are “positive” with non-mining business investment “increasing”. It added that higher levels of public infrastructure investment is “supporting the economy” as is “stronger growth in exports”.
- Recent data on business investment, construction work done and international trade all suggest this is occurring.
- On the back of soft retail sales reports for March and April, its view that household consumption is “one continuing source of uncertainty” will likely remain the same, particularly given recent weakness in Sydney and Melbourne property prices.
- Despite a surprise lift in Australia’s unemployment rate in April to 5.6%, its optimistic outlook for labour market conditions, and eventually wage growth, is likely to remain the same.
- Employment growth has slowed and labour force participation has increased significantly, leading to upward pressure on unemployment, continuing the trends seen in prior months.
- Despite the lift in unemployment, it will likely repeat that it has been “steady at around 5.5% for some months”.
- Given a rebound in job ads during May, its view that various forward-looking indicators continue to point to “solid growth in employment” and a “gradual reduction in the unemployment rate” will probably be repeated word-for-word.
- Despite a disappointing Australian wage report for the March quarter, revealing that average hourly pay rates failed to accelerate in the year to March, it’s likely to retain the view that stronger economic growth “should see some lift in wages growth over time”.
- A large 3.5% increase in Australia’s minimum wage rate from July 1 will help to bolster the RBA’s confidence on wages.
- Given the linkages between wage growth and price pressures, along with a lack of new data, it’s views on inflation will be much the same, if unchanged.
- In May, it said that “inflation is likely to remain low for some time” before gradually picking up “as the economy strengthens”. It previously saw headline CPI lifting to a “bit above 2%” in 2018.
- Given the recent increase in the Australian dollar, it will almost certainly repeat that a higher exchange rate will likely result in a “slower pick-up in economic activity and inflation than currently forecast”.
- While there’s unlikely to be many major changes, the bank will probably tweak its tone on current housing market conditions.
- Previously, it said that Sydney and Melbourne’s markets had “slowed” with nationwide measures of prices “little changed over the past six months”.
- Prices in Sydney and Melbourne have continued to fall since it last met, dragging national growth over the past year into negative territory. Separate data on auction clearance rates, housing credit growth and investor lending has also been weak, as has foreign investment approvals.
- The board may take this opportunity to briefly convey what, if anything, ongoing price declines in these capitals could do to the broader outlook for the economy.
- Outside of Australia, the bank’s views on the global economy, financial markets and monetary policy outlook for major central banks is likely to remain much the same.
- A such, it will repeat the view that official interest rates will remain at current levels for the foreseeable future, mirroring recent remarks from several Board members.
- In May, it said low interest rates continues to “support the Australian economy”, adding that “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”.
The RBA policy statement, including the interest rate decision, 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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