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The Reserve Bank of Australia has left interest rates unchanged at 1.75% at its July monetary policy meeting.

While that was all but expected by economists and markets alike, the question most wanted answered today was whether the board would insert an explicit easing bias, indicating that rates could be reduced further in the months ahead.

And the answer is no, but the board did provide an indication on what is will be looking at ahead of its next meeting in August: The Australian Bureau of Statistics Q2 CPI report.

Here’s the final paragraph in the July policy statement, in which the bank communicates its rates bias.

“Taking account of the available information, the Board judged that holding monetary policy steady would be prudent at this meeting. Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate,” it said.

While there no explicit easing bias, it is noteworthy that the board specifically mentioned “its assessment of the outlook for growth and inflation” in order to “make any adjustment to the stance of policy that may be appropriate.”

Inflation report to be a show-stopper

If it wasn’t already, the Q2 CPI report looks set to be a show-stopper. Another weak outcome — like what we saw for the March quarter — could still lead to a cut in official interest rates in the months ahead, despite the absence of an easing bias.

After initially popping to as high as .7543 in the immediate aftermath of the release, the AUD/USD has now fallen back to .7504, below the level it was trading before the RBA statement hit. Australian government bond yields have fallen fractionally with the benchmark 10-year yield currently sitting at 1.936%, just shy of the record low struck on July 1.

Australian cash rate futures currently put the odds of a further 0.25% rate cut in August at 56%. The ASX 200 is relatively unchanged.

On inflation, something that looks set to dominate discussion in the month ahead, the board stated that “inflation has been quite low”, adding that “given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time”.

“The absolute MacDaddy release will be the Q2 CPI print on 27 July,” said Chris Weston, chief markets analyst at IG Markets in Melbourne. “The CPI print will absolutely solidify rates expectations and another low ball print seems to be likely and in my view be the nail in the coffin for an August rate cut.”

Outside of the inflation outlook, the board touched on the UK “Brexit” vote, expressing some uncertainty over what it could mean for the global economy in the period ahead.

“Financial markets have been volatile recently as investors have re-priced assets after the UK referendum,” it said. “Any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern.”

Despite those uncertainties, it acknowledged that “most markets have continued to function effectively”.

Noticeably, there was no discussion on the federal election outcome in Australia. Perhaps, like us, the board is waiting for the dust to settle in Canberra.

On housing, the other major topic that has dominated discussion in recent months following a pickup in house prices, particularly in Sydney, the board struck a somewhat hawkish tone, stating that “dwelling prices have risen again in many parts of the country over recent months”.

This was an adjustment from that offered in June when it said “dwelling prices have begun to rise again recently”.

Still, as was the case then, the board appears satisfied that recent regulatory measures introduced by APRA, along with an increased supply of apartment stock, will likely keep price pressures contained.

“Indications are that the effects of supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments,” it stated.

“(A) considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities,” it added.

Elsewhere the commentary offered by the board was much the same as communicated in June.

On the labour market it said “indicators have been more mixed of late, but are consistent with a modest pace of expansion in employment in the near term.

Sounds about right, mirroring the modest growth in employment and job ads seen in recent months.

On the broader Australian economy, it noted that “recent data suggest overall growth is continuing, despite a very large decline in business investment.”

It also acknowledged the prior contribution to economic growth from lower interest rates and the weaker Australian dollar.

“Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector,” it said. “These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.”

Despite the absence of an explicit easing bias and slight tweak in the language towards house prices, the market reaction to the policy statement has been muted by past standards.

Perhaps it’s what traders expected, or perhaps it’s the acknowledgement that all that matters in the month ahead, at least from what is known already, is the June quarter CPI report released on July 27.

One suspects it is the latter. It’s been said before and it’ll be said again — inflation is the only game in town at present.

The full RBA July monetary policy statement can be accessed here.

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