The Reserve Bank of Australia (RBA) will announce its March interest rate decision later today.
Keeping with the theme seen for well over a year, few, if anyone, think the cash rate will move from 1.5% today.
That means all attention will yet again fall on the accompanying monetary policy statement, particularly the bank’s views on wage growth, business investment, the housing market and current trends in financial markets, all topics that have dominated discussion since the board last met in early February.
Here’s the state of play.
- No one expects interest rates will change today.
- All 22 economists polled by Bloomberg expect the cash rate to remain at 1.5%. Traders — based off current market pricing — are also certain that rates will be left unchanged.
- In the accompanying monetary policy statement, most interest will fall on the bank’s outlook for wage growth given another tepid increase in the final quarter of 2017, especially for private-sector workers.
- When it met in February, the RBA said that despite improving labour market conditions, “wage growth remains low,” adding that “this is likely to continue for a while yet”. It suggested that a “stronger economy should see some lift in wage growth over time”.
- On the inflation outlook, and despite continued softness in private-sector wage growth, the RBA’s commentary is likely to be much the same.
- When it met in February, it said “inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing”. Mirroring what it said regarding wage growth, it added that a “gradual pick-up in inflation is… expected as the economy strengthens”.
- In its forecasts released in early February, the RBA saw underlying inflation returning to the lower-half of its 2-3% target band by mid-2020.
- The bank’s commentary on the Australian dollar is unlikely to change much, particularly as the currency is now marginally lower than when it met in February in trade-weighted terms.
- It will likely warn again that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
- Given recent chatter from APRA and Australian Treasurer Scott Morrison about the potential unwinding of some macroprudential restrictions on investor home loan lending, there’ll also be plenty of interest on what the RBA has to say relating to financial stability risks.
- It previously suggested that “tighter credit standards have also been helpful in containing the build-up of risk in household balance sheets”.
- Given recent data, its view that “nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas”, is likely to be much the same.
- Ahead of the release of Australia’s Q4 GDP report on Wednesday, it’s hard to see bank altering its view that economic growth will “average a bit above 3% over the next couple of years”.
- Following the release of Australia’s Q4 private business capital expenditure (CAPEX) report last week, markets will also be watching for any tweaks on its outlook for business investment.
- Before the report was released, it said “the outlook for non-mining business investment has improved”.
- It’s also likely to retain the view that “one continuing source of uncertainty is the outlook for household consumption”.
- While it will likely retain an optimistic assessment on the current state of the global economy, the RBA may touch upon recent volatility across financial markets.
- In February, it noted that “financial conditions remain expansionary, with credit spreads narrow”, adding that “long-term bond yields have risen but are still low”.
- As for the outlook for Australian interest rates, the RBA will almost certainly retain a neutral policy bias in the final paragraph of the statement, indicating that policy is unlikely to change for the foreseeable future.
- In February, it said “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”.
- It added that “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”. This suggests that while rates are now more likely to rise than fall in the period ahead, it is unlikely to be in the near-term.
The RBA March policy statement, including the interest rate decision, will be released at 2.30pm AEDT.
Business Insider will have all of the details as soon as it hits the screens.
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