The Reserve Bank of Australia (RBA) will announce its October interest rate decision later this afternoon.
With no one expecting a movement in interest rates, all interest will yet again fall on the accompanying monetary policy statement, particularly on what the board has to say in relation to Australia’s labour and housing markets, along with the broader economy.
Here’s the state of play.
- As has been the case for well over a year, no one expects that interest rates will move today.
- All 23 economists polled by Bloomberg expect the cash rate will remain at 1.5% while cash rate futures put the odds of a rate movement in either direction at 0%.
- In the accompanying monetary policy statement, most interest is likely to be on the paragraph that discusses domestic labour market conditions given continued strength in official and complementary data.
- In September, the RBA said that employment growth had “been stronger over recent months” and had “increased in all states”, adding that “various forward-looking indicators point to solid growth in employment over the period ahead” with the unemployment rate “expected to decline a little over the next couple of years”.
- Despite that, it said that “wage growth remains low”, adding that this is likely to continue for a while yet, although stronger conditions in the labour market should see some lift in wages growth over time“.
- Given recent data, it’s likely that the RBA will keep a similar assessment today. Indeed, if there is a change, it’s likely to express more confidence when it comes to the outlook for labour market conditions.
- On the housing market, the board is likely to keep its assessment much the same.
- In September, it said that “conditions in the housing market continue to vary considerably around the country”, noting that “prices have been rising briskly in some markets, although there are signs that conditions are easing, especially in Sydney.”
- It also added that “growth in housing debt has been outpacing the slow growth in household incomes“.
- On the broader Australian economy, the board is likely to retain a confident view.
- Previously it said that recent data had been “consistent with the Bank’s expectation that growth in the Australian economy will gradually pick up over the coming year”.
- If there is to be a tweak, it will be in relation to retail sales which have faltered in recent months after a strong June quarter.
- In September, it noted that retail sales had “picked up recently”.
- Despite a recent decline in both trade-weighted and US dollar terms, the board will likely repeat that a higher Australian dollar exchange rate “would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”.
- Although unlikely, the RBA could express even greater concern about the Australian dollar given it’s largely unchanged over the month despite recent weakness in commodity prices such as iron ore and coal.
- As such, its assessment that “commodity prices have risen recently” will likely be changed in October.
- As for its assessment towards the global economy, it’s likely to be much the same with conditions “continuing to improve”.
- In the final paragraph of the statement in which the board communicates its bias on the outlook for interest rates, it will almost certainly be a carbon copy of that issued in September.
- “The low level of interest rates is continuing to support the Australian economy,” the board said in September. “Taking account of the available information, the Board judged 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.”
- Any tweak to this paragraph would come as a major surprise to markets, signalling that the RBA is moving towards a change in interest rates. Given the recent data flow, that change would almost certainly be higher.
The monetary policy statement, including the RBA’s interest rates decision, will be released at 2.30pm AEDT.
Business Insider will have all of the details as soon as it hits the screens.