The Reserve Bank of Australia (RBA) will announce its August interest rate decision this afternoon (2:30pm AEST).
Given the cash rate will almost certainly remain at 1.5%, markets will turn their attention to the accompanying monetary policy statement.
The bank will release a more detailed discussion of any policy changes in its meeting minutes in two weeks time.
However, markets will be looking out for any tweaks in the language of today’s statement — particularly ahead of this Friday’s Statement on Monetary Policy (SoMP), where the RBA will unveil its latest set of economic growth projections.
This month, the focus will likely be on housing market conditions along with the outlook for domestic inflation, global trade, the Australian economy and employment.
Here’s the state of play:
The last time the RBA moved official interest rates was August 2016 — a cut of 25 basis points in the cash rate to 1.5%.
Data from ANZ last week showed the timeline for financial markets to fully price in a 25 basis point increase has now extended all the way to 2020.
All 29 economists surveyed by Bloomberg expect the cash rate to stay on hold at 1.5% today.
In today’s statement, markets will take interest in the bank’s latest views towards the housing market, after July data showed house prices fell at the fastest monthly rate in seven years.
In July, the bank adopted a cautious tone towards housing finance, noting that “some further tightening of lending standards by banks is possible, although the average mortgage interest rate on outstanding loans has been declining for some time”.
And despite some out-of-cycle rate hikes by smaller lenders in June, in recent weeks a number of the big banks have cut mortgage rates in an effort to gain market share.
The RBA may also update its views on the recent rise in bank funding. In July, the central bank said “short-term wholesale interest rates have increased over recent months”, however, “it remains to be seen the extent to which these factors persist.”
Today’s announcement comes ahead of the bank’s Statement on Monetary Policy on Friday, which includes updated growth forecasts. Markets will be looking for any tweaks in language for the growth outlook, as the RBA often provides clues in its statement if it’s planning to change its quarterly growth projections.
Markets will also be looking for additional commentary on global growth, as US-China trade tensions continue to escalate. Last month, committee members highlighted President Trump’s aggressive trade policies as a concern for the global economy.
The bank will also provide updates on the outlook for inflation, employment and domestic consumption following a number of key data releases since its last meeting.
In July, the RBA said “further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.”
Q2 inflation data in July missed expectations slightly to the downside, and core inflation remains below the RBA’s 2-3% target band. It marked the seventh straight quarter that CPI undershot expectations.
The bank is likely to repeat its optimistic tone about the labour market, after July employment numbers showed an unexpected surge of 50,000 jobs. The result smashed expectations despite some unusual features in the data. Adjusted for rounding, the unemployment rate fell to the lowest level since 2012.
In July, the the RBA said “a gradual decline in the unemployment rate is expected, after being steady at around 5.5% for much of the past year.”
And in terms of the consumption outlook, today’s rates announcement follows last Friday’s June retail sales data, which beat expectations for the third straight month. In recent months, the RBA has consistently said that “one continuing source of uncertainty is the outlook for household consumption”.
And on the subject of the currency, the RBA noted last month that the AUD had “depreciated a little” but remains within its recent trading range.
In something of a surprise, the bank dropped its warning that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”. However, the reaction on forex markets was relatively muted.
In what should be the easiest decision at the meeting, the bank will almost certainly retain the same wording as July in the final paragraph of the statement, indicating that official interest rates will remain unchanged for the foreseeable future.
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