This afternoon the RBA will deliver its August rate decision with more interest likely to stem from the monetary policy statement rather than the rate announcement itself.
Here’s the state of play.
- Australian interest rates often move in February, May, August and November due to these meetings coinciding with the release of updated economic forecasts in the RBA’s quarterly statement of monetary policy.
- While the RBA lowered interest rates in both February and May this year, markets attach little probability to rates being moved today despite the RBA’s SOMP being released later in the week.
- According to cash rate futures, there is only a 9% chance that the RBA will lower the cash rate to 1.75%.
- This sentiment is echoed by economists with only 1 of 22 surveyed by Thomson Reuters forecasting a rate cut of 0.25%.
- While interest rates are unlikely to move, there will be plenty of interest in accompanying monetary policy statement, particularly on the language used to describe domestic economic growth, the labour market and the current level of the Australian dollar.
- In July, the RBA described economic growth as “somewhat below its longer-term average” with “the rate of unemployment, though elevated, little changed recently”. On the Australian dollar they also noted that “further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices”.
- With the RBA actively debating whether Australia’s trend growth rate – traditionally seen around 3-3.25% – may be lower than previously assumed, there is a small chance that the language on domestic economic growth, and as a consequence the unemployment rate, may be altered in the statement.
- Given the recent depreciation in the Australian dollar – it’s fallen 4.64% against the US dollar and 3.76% on a trade-weighted basis since the board last met – the language towards the currency may also soften given the relative stability in prices for Australia’s key commodity exports.
The RBA rate decision and monetary policy statement will be released at 2.30pm AEST.
Business Insider will have full coverage as soon as the decision drops.