The RBA Won't Move Rates But Markets Are Still Holding Their Breath

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It’s the first Tuesday in October and like ever other month except January, the Board of the Reserve Bank of Australia will gather to decide the fate of millions of borrowers and savers relying on their self-funded status to get through retirement.

It seems that possibly that last fact as much, if not more, than concerns about the recent rise in housing has been top of mind for the Reserve Bank in their seemingly growing recalcitrance to cut rates further over the past couple of months.

Indeed, no one seems to expect a cut this month either. The Westpac Global Strategy Team sent a note to clients yesterday saying:

The RBA Board meeting tomorrow is widely expected to be a non-event, with the Bank likely to opt to keep rates on hold.

The NAB Economics team had a similar view, noting to clients that:

For tomorrow, we expect the RBA’s statement to be pretty much word for word as it was in September. Again, the market might be naïve enough to be looking in the statement for signs that the door is still open for another cut.

But as the NAB alludes, an RBA Board Meeting is never a non-event. The modern trend to announcements which accompany the Board’s decision leave some room for market interpretation and reaction each month and this month is likely to be the same.

Traders will be watching for:

  • Any hint of an easing bias – the question will be, Is it still there?
  • Any hint of the RBA getting frustrated with the Aussie Dollar’s recent strength and what they might do about it
  • Any hint that the inflation outlook gives room for easing. Based on yesterday’s TD-MI monthly inflation gauge which showed annual inflation of 2.1%, that seems likely
  • The RBA’s view on unemployment

How all these things and the RBA’s view on the state of the global economy tie together and are articulated at 2.30pm this afternoon mean that the interest rate decision might be a non-event. But the market’s reaction hardly ever is.

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