Later this afternoon the Reserve Bank of Australia (RBA) will announce its September rates decision, marking governor Glenn Stevens’ 110th and final monetary policy decision as RBA governor.
While markets and economists believe there’s next to no chance that the RBA will follow up August’s rate cut with another, that’s not to say that the meeting is meaningless — not by a long shot. There’s still the nuances in the policy statement to digest, including the all important final paragraph in which the board will communicate its bias towards the outlook for interest rates.
Here’s the state of play.
- First and foremost, almost no one expects that interest rates will be reduced today.
- In a poll of 25 economists from Bloomberg, not one expects a rate cut. Markets share a similar view, attaching only a 5% probability that the cash rate will be reduced to 1.25%.
- History is also on the side of those forecasting a non-move. In the past two decades, the RBA has only moved rates twice at its September meeting, in 2001 and 2008. Both coincided with significant weakness in the global economy at that time.
- Given the view that rates will be left unchanged, all attention today will fall on the wording of the accompanying monetary policy statement, in particular the final paragraph.
- In June, following the RBA’s decision to reduce the cash rate to 1.75% at its May policy meeting, the final paragraph of the statement read “taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time”.
- Many suspect that a similar outcome will arrive today, only with “May” replaced by “August”.
- In the absence of an explicit easing bias, markets will be scouring the document for signs of an implicit easing bias from the board. In non-central bank speak, this infers that rates are still likely to move lower in the period ahead without actually saying it.
- Specifically, markets will be paying close attention to the wording on the inflation and labour market outlooks, recent developments in the housing market, along with that towards the Australian dollar. For a recap before the September statement arrives, here’s what the board said in August.
- This is particularly relevant, and will likely be market moving, given a majority of economists and those in markets believe that another rate cut in this cycle is likely.
- Should the board leave the cash rate unchanged at 1.5% today, Glenn Stevens’ tenure as RBA governor will stand as follows: 109 meetings in charge. 30 rate movements. 18 rate cuts delivering 750 basis points in easing. 12 rate increases totaling 300 basis points in policy tightening. Though not everyone agrees with the way it has been achieved, crucially, perhaps the most telling statistic is that there have been zero recessions for Australia during his tenure as governor.
The rate decision and policy statement will be arrive at 2.30pm AEST.
Business Insider will have full coverage as soon as it hits the screens.
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