There’s only likely to be two possible outcomes that arrive from today’s RBA interest rate meeting, and neither will involve an adjustment to the cash rate.
Prashant Newnaha, rates strategist at TD Securities, suggests that the tone of the statement, rather than the rate decision, will have the greatest bearing on financial markets.
This flowchart, supplied by Newnaha, show’s not only what he thinks the RBA could do, but also the subsequent market reaction that would result.
Mirroring the sentiment expressed by economists and financial markets, Newnaha puts the probability of the cash rate remaining at 1.5% at 99%.
According to Newnaha, with the rate decision near meaningless in his opinion, the RBA’s language on growth in the accompanying monetary policy statement takes on increased significance given the shock 0.5% Q3 GDP contraction that was reported a day after the RBA board last met.
“Will the RBA treat the Q3 outcome as a speed bump or will it force a wholesale revision to the growth outlook,?” he asks.
Newnaha believes the most likely outcome will be the former, attaching a 70% probability that the RBA will release a “neutral” monetary policy statement, something that would imply interest rates will likely be left unchanged for the foreseeable future.
“We would be looking for the RBA to mention that “information released since the Q3 national accounts suggests a likely resumption of growth’,” he says.
The outlier outcome at this meeting, says Newnaha, is for the RBA to offer a dovish policy statement, something that would almost certainly have the largest impact on financial markets given it would signal an increased probability that the bank could cut interest rates further.
“Downgrades to GDP AND CPI are prerequisites to warrant a shift in RBA thinking from a neutral to a dovish stance,” he says. “If the RBA removes any language pointing to a pick up in growth, then this will be bullish for rates (lower yields).”
Newnaha puts the likelihood of such an outcome at 30%. Essentially unlikely, but not out of the realms of possibility.
For those looking for further information before the rate decision arrives, this 10-second guide will help to bring you up to speed.
It’s scheduled for release at 2.30pm AEDT.
Business Insider Emails & Alerts
Site highlights each day to your inbox.