Daily Commentary BY THE CURVE TEAM –

RBA Day

7th of August, 2018

Today will see the first to a triple treat of updates from the RBA this week. The RBA is expected to leave the cash rate unchanged for the 24th straight month with the focus squarely on any changes to the accompanying statement.

The current stance of monetary policy continue to notch up more records. To go with a record low cash rate, today’s meeting is expected to see the cash rate remained unchanged for the 24th straight month, extending the record for cash rate stability.

Market pricing suggest that record will be extended some way with expectations drifting a little further ahead of today’s meeting. You can see by the chart that there isn’t a hike fully priced in as far out as early 2020.

Economists, market commentators and the market alike will go through today’s accompanying statement with a fine tooth comb for any hints of a change in rhetoric from past statement. They will also look for any clues as to what is to come in the Governor’s speech tomorrow and the quarterly Statement on Monetary Policy on Friday.

The risks to the RBA’s outlook are certainly cause for concern with dynamics for  households around debt, wages and banks shifting lending standards the key one. The situation in rural Australia should not be under estimated with the impact of the worst drought in almost a century likely to have wide ranging impacts on the national accounts and inflation over the quarters ahead.

However there has been enough for the RBA to reiterate their core message that has been common place for a number of months now. The most recent retail figures showed consumers remain resilient with the annual pace of sales tracking the speed of wage growth just north of 2%.  The economy continues to create more jobs and the housing market, while deteriorating, has yet to implode.

As I wrote yesterday, if the RBA ever wanted a platform to announce a shift in policy, it has the perfect one this week. However, given the RBA’s desire to be a source of confidence and stability, we are more likely to see the usual subtle shifts in the wording used, rather that a large shift in their outlook for monetary policy.

David Flanagan

Director - Interest Rate Markets