The Reserve Bank of Australia (RBA) will announce its September interest rate decision later this afternoon.
With no one expecting a movement in interest rates, all interest today will fall on the accompanying monetary policy statement, and even then it’s debatable whether the bank will have much to add given the raft of commentary that’s been seen since it last met on August 1.
Still, given no one is expecting much from this meeting, that presents a risk in itself should the RBA deliver a surprise.
Here’s the state of play.
- As has been the case for over a year, no one expects that interest rates will move today.
- All 23 economists polled by Bloomberg expect the cash rate will remain at 1.5% while futures markets put the odds of a rate movement in either direction at 0%.
- That means all interest today will be on the policy statement, particularly on what the bank says in relation to Australia’s labour and housing markets, the outlook for economic growth, as well the current level of the Australian dollar.
- In reality, with the exception of a few tweaks to reflect recent economic data, it’s likely to be much the same.
- The final paragraph of the statement is still likely to convey a neutral bias on the outlook for interest rates.
- In August the bank said that “holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”, adding that “the low level of interest rates is continuing to support the Australian economy”.
- The addition of the final line was seen by some analysts as an attempt from the RBA to push back on growing expectations that it was considering lifting interest rates in the near-term.
- If that line is absent today it will create a talking point.
- The RBA is likely to retain a cautiously optimistic view on the current state of the Australian economy.
- Previously it said that “the transition to lower levels of mining investment following the mining investment boom is almost complete”, adding that “some pick-up in non-mining business investment is expected”. Recent business capital expenditure figures suggest that’s taking place.
- Its view that business conditions “have improved” with the high level of residential construction “to be maintained for some time, before gradually easing” are likely to be repeated.
- Despite a rebound in retail sales in recent months, its view that the outlook for household consumption is “one source of uncertainty for the domestic economy” is likely to be left unchanged.
- On the labour market, its views are also likely to be much the same. Employment growth remains “stronger” than earlier in the year with forward indicators continuing to point to further gains ahead, although wage growth is still “low” based on the June quarter wage price index.
- In relation to the housing market, the other key area for policy consideration at present, the bank may express greater confidence that recent attempts to reduce building financial stability risks are working.
- A month ago it said that “conditions in the housing market vary considerably around the country” with prices rising “briskly in some markets, although there are some signs that these conditions are starting to ease”. It also noted that there had been “some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness”.
- Recent data on house prices, bank lending and housing credit growth points to a moderation in housing market conditions from those seen earlier in the year.
- On the Australian dollar, the bank will likely repeat that “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast”. Yes, it’s high, but so too are commodity prices and the global economy is improving — two factors that would normally support the Aussie.
- Given a continuation of prior trends, the bank’s upbeat commentary on global economic conditions is likely to remain much the same.
- With little new information to hand, it’s also unlikely to tweak the view that Australian “inflation is expected to pick up gradually as the economy strengthens”.
The policy statement will be released at 2.30pm AEST.
Business Insider will have all of the talking points as soon as hits the screens.
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