The RBA Is Expected To Leave Rates Unchanged Today But That Doesn't Mean The Decision Is A Non-Event

Getty/Brendon Thorne

There is plenty to occupy traders today given the positive lead from Wall Street overnight which has buoyed stocks a little and the Aussie a lot. Add in the Chinese PMI and the AiG Performance of Manufacturing Index and it’s not going to be a quiet lead into today’s RBA announcement.

Pretty much every economist reckons that there will be no change in rates but there is now a big divergence over where the economy is and what the RBA needs to do about it. That’s going to drive a forensic analysis of the words the RBA governor Glenn Stevens uses in his statement to be released at 2.30pm AEDT.

Traders will focus on the words Stevens uses about credit growth – which has risen to a two-and-a-half year high as shown by the RBA Credit Aggregates released yesterday. With housing credit growth the highest since the RBA started cutting rates in late 2011, it might be hard for the governor to say: “Credit growth remains low overall but is picking up gradually for households.”

Traders will also focus on what the RBA says about inflation given the recent quarterly CPI and the TD Inflation gauge yesterday which threatens to break up and through the top of the RBA’s 2-3% band. More likely than not though, they will be sanguine on this point.

Likewise Aussie dollar traders will be hanging on any reference to the dollar and its level. In the last statement, the governor said: “The decline in the exchange rate seen to date will assist in achieving balanced growth in the economy, though the exchange rate remains high by historical standards.”

Since then however, the Aussie has risen 3 full cents from where it was immediately before the release of the governor’s statement on March 3 and is threatening to break higher if he doesn’t change his statement. Indeed, both the ANZ and NAB strategy teams in their morning notes today think Stevens won’t change his language, which will be supportive to bullish for the Aussie.

While this is the case in most quarters, David Scutt at Arab Bank warned this morning:

If there is a risk heading into the event, it will be that the Board will use more forceful language towards the level of the Dollar, something that will likely catch markets off-guard given expectations for jawboning have diminished in recent weeks.

So while there is unlikely to be a move by the RBA on interest rates today, this meeting is far from a non-event.

We’ll have live coverage at 2.30pm today.

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