Daily Commentary BY THE CURVE TEAM –

RBA Day

7th of May, 2019

All eyes will be on Martin Place today when the RBA meets to discuss monetary policy. History suggests that the RBA won’t cut rates today but it will be a close call.

After leaving the cash rate on hold for almost three years, there is an outside chance we see the RBA ease monetary policy when the announce their decision this afternoon at 2:30. Growth has slow, inflationary pressures have eased and wage growth remains absent.

The one saving grace for the RBA is that employment growth remains strong. It is the one thing that could see the RBA hold fire today. If employment growth continues to remain strong, it is the RBA’s thinking that it will help address wage growth and inflation in time.

History also suggests that the RBA won’t cut interest rates today either. I saw an interesting stat yesterday from the economics team at Westpac which showed that since 2002, the RBA hasn’t delivered an interest rate cut when the market was pricing less that a 50% chance of a cut going into the meeting.

Current market pricing is sitting just under 50%. That suggests that the RBA will sit pat and likely wait until another set of quarterly data outcomes are available. It will also give the banks some time to pass on some of the savings from the recent collapse in funding costs. We’ll find out in a few hours.

Quickly in overnight news, the US administration continued the pressure on the Chinese when it comes to trade negotiations. It seems that Trumps tweets Sunday night will act as an ultimatum to the Chinese team due to arrive on Thursday.

After news that the Chinese were back peddling on previously agreed terms, if a deal is not agreed this week, tariffs will be ratcheted up. As much was confirmed by a raft of comments from Trump’s key men associated with the talks. It makes for an interesting end to the week.

David Flanagan

Director - Interest Rate Markets