If you’re looking for excitement from tomorrow’s Reserve Bank of Australia (RBA) interest rate meeting, be prepared for disappointment.
According to Prashant Newnaha, interest rate strategist at TD Securities, it’s likely to be a fizzer for anyone craving market volatility.
This flow chart shows what Newnaha expects to Tuesday.
In his view, there’s a 99.9% chance that official interest rates will be left unchanged at 1.5%, mirroring the broader view expressed by traders and economists alike.
He also expects little change in the accompanying monetary policy statement, ascribing a 90% probability that the RBA will retain an optimistic-yet-neutral tone in September.
“The bank is expected to remain upbeat on global activity,” he says.
“On the domestic economy the RBA is likely to reaffirm its positive outlook for the labour market and expectations for inflation to trend higher towards its target.
“There has been minimal domestic data released since the last meeting, but the overall tone has been positive with building approvals, retail sales, employment, CAPEX all supporting its glass-half-full outlook for the domestic economy,” he says.
If there is to be any interest, Newnaha says it will likely be on what the bank says in regards to the Australian dollar.
“We believe there is little basis for the RBA to talk down the AUD in tomorrow’s statement,” he says, noting that TD’s fair value model suggests its not overvalued at present.
“All the bank can really do is state that the AUD is likely to contain price pressures and complicate the economic transition. There is nothing new here,” he adds.
Outside of it’s commentary on the Aussie, Newaha says the RBA is likely to express cautious optimism towards the recent slowdown in Australia’s housing market.
“The bank is likely to mention its satisfaction on the macro-prudential front,” he says.
“That said, this development does little to alter the Bank’s wait-and-see outlook for monetary policy with the Bank noting in its August Minutes that developments here will warrant ‘careful monitoring’.”
The RBA’s September monetary policy statement, including the rate decision, will be released at 2.30pm AEST.
While few will disagree with Newnaha’s assessment, the fact that no one is expecting anything means there could be a substantial market reaction should a surprise be delivered.
That alone will ensure that there’ll still be interest ahead of its release.