Later today the RBA announces its 11th and final rates decision for 2015 with more interest likely to come from the monetary policy statement rather than the actual policy decision.
Here’s the state of play.
- Financial markets attach very little probability of interest rates being cut to 1.75% this afternoon.
- Cash rate futures put the odds of a 0.25% rate cut at just 2% while all 27 economists surveyed by Bloomberg expect the cash rate to remain at 2.0%.
- As a result, most interest will likely come from the accompanying monetary policy statement released alongside the rate decision.
- The final paragraph in particular will be closely scrutinised given the RBA inserted an easing bias into its November policy statement, indicating a willingness to reduce interest rates further should additional stimulus be required.
- In November the board acknowledged “that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.”
- While unlikely, should the easing bias be removed in the December policy statement, it will likely be supportive of the Australian dollar and bond markets but detrimental to stocks.
- While the board’s outlook for inflation is likely to remain unchanged, there may be additional commentary on business expenditure, the labour market and developments in residential property given given recent mixed readings on the economy.
- If there are any changes they’re likely to be more positive towards the labour market but softer on business expenditure and the outlook for the housing market, particularly in Sydney and Melbourne.
- Further declines in prices for Australia’s key commodity exports, particularly iron ore, may also see the board change its language towards the Australian dollar. Since August, the RBA have suggested that it has been “adjusting to the significant declines in key commodity prices”. Over the past two months the spot iron ore price has fallen by 20% while the currency has risen fractionally, raising questions over the current validity of the statement.
The RBA will release both its rate decision and monetary policy statement at 2.30pm AEDT. Business Insider will have full coverage as soon as it hits the screens.
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