Your playbook for reading today's RBA policy statement, courtesy of the CBA

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For a meeting where the Reserve Bank of Australia (RBA) will almost certainly keep rates on hold, there sure is a lot of interest in today’s monetary policy decision.

Most think that the RBA will retain its neutral bis, indicating that rates are likely to remain unchanged for some time yet.

However, it’s clear that many are now starting to question that view given the hawkish shift in sentiment expressed by central bank officials in Europe, the UK and Canada in recent weeks.

Many are pondering whether this is the start of a concerted effort from policymakers around the world to begin reversing emergency policy settings introduced in recent years, with the RBA next in line to follow suit.

On the surface it appears highly unlikely, but a niggling doubt remains nonetheless.

That means today’s monetary policy statement will be scrutinised and scanned from top to bottom, even more than usual.

And, for those who don’t spend their days analysing central bank statements for a living, many want to know what changes to look out for, and what the ramifications will be if they do appear.

Thankfully, Michael Blythe, chief economist at the Commonwealth Bank, has obliged, releasing a “cheat sheet” of sorts on what the uninitiated should look out for.

Here’s a few key paragraphs from a note he released earlier today, starting with the balance of risks when it comes to the tone of the RBA statement.

The risk today is that the RBA does sound more hawkish, although we see rate rises as still a long way off. The problem lies with the RBA’s incremental approach to changing its policy Statements. Most is the same as the previous month, so any changes tends to be given more “weight” than they probably really deserve.

So from that perspective the RBA today will have to remain part of the global chorus singing about the improving global backdrop. That improvement will make it hard for them to be too pessimistic on commodity prices. They will have to acknowledge the recent strength in the labour market. And the jump in dwelling prices reported yesterday will make it hard for the RBA to declare victory on the housing front.

Equally, though, they will have to acknowledge the weak Q1 GDP numbers released the day after the June Board meeting. And that mortgage rates have already lifted independently of any RBA activity.

The risk, in Blythe’s opinion, is that the bank may convey a hawkish message given a recent improvement in Australian labour market data and strength in data from abroad.

However, while that may happen today, Blythe says that in order to really rattle the market’s feathers, the RBA will signal that it is less concerned about persistently low inflation, paving the way for an increase in interest rates in the period ahead.

Previously the RBA said that “inflation is expected to increase gradually as the economy strengthens”. Blythe says that a tweak to that view is “unlikely”.

While much of the focus has been on whether the RBA will turn hawkish, Blythe says the bank could actually surprise on the dovish side of the equation, too, suggesting that it may use its commentary on the Australian dollar to push back against growing rate hike expectations.

He explains:

One warning sign to look for is the RBA’s commentary on the AUD. They have stuck with a formulation that “an appreciating exchange rate would complicate this adjustment” (ie to non-mining led growth). If they ramp up that comment then that would be a sign that they are reluctant to lift rates if that means a stronger Aussie dollar.

That’s not out of the realms of possibility given the Aussie dollar has lifted by around 2.5% against the US dollar and in trade-weighted terms since the board last met, coinciding with a ramping up of expectations that a rate hike may be nearing.

Source: CBA

We’ll find out what changes, if any, the RBA have made come 2.30pm AEST.

The Commonwealth Bank is forecasting that the RBA will leave rates unchanged until the final quarter of next year.

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