Later this afternoon, the Reserve Bank of Australia (RBA) will announce its March interest rate decision.
It’s a near-certainty that the bank will leave the cash rate unchanged at 1.5% for a sixth consecutive meeting, meaning all attention yet again will be on the accompanying monetary policy statement.
Here’s the state of play.
- Almost no one thinks that rates will change today.
- Of the 24 economists polled by Bloomberg, all expect the cash rate will remain at 1.5%.
- Financial markets have a similar mindset with cash rate futures putting the probability of a 25 basis point rate cut at just 3%, and perhaps that’s being generous.
- Given that sentiment, it will be today’s policy statement that will be of most interest to financial markets.
- It’s likely to be cautiously optimistic — mirroring recent sentiment from governor Philip Lowe — although it won’t be enough to see it change its neutral rates bias in the final paragraph of the statement.
- In February, the bank said that “holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
- That’s likely to be unchanged today.
- Given there’s been little change in sentiment towards inflation and labour market conditions since the board last met — two areas that the RBA has acknowledged that it is watching closely — it’s doubtful that there’ll be any significant changes to what was communicated in February.
- Its view that “an appreciating exchange rate would complicate” the economy’s adjustment is also likely to remain the same.
- In light of last week’s December quarter GDP report — revealing a rebound in real GDP of 1.1% following a 0.5% decline in the previous quarter — there’s be plenty of interest on the bank’s updated view on the outlook for the domestic economy.
- Given continued strength in the Sydney and Melbourne markets — something that has dominated discussion among the populace, politicians and even the RBA itself in recent months — many will be watching to see if the bank uses more aggressive language than what was communicated in February.
- Since it last met, house prices in Sydney and Melbourne grew rapidly, accompanied by elevated auction clearance rates. Investor credit growth also expanded strongly, continuing the trend seen in the second half of last year.
- Up until now, the bank has appeared satisfied that an increase in supply, strengthened lending standard and a “more cautious attitude to lending in certain segments” will help to ease price growth in these cities.
- Internationally, the bank may also mention the recent shift higher in expectations for a US rate hike in mid-March.
The RBA will deliver its decision at 2.30pm AEDT.
Business Insider will have all of the details as soon as it’s released.