That’s 0330GMT.
After 8 weeks of lying on various beaches, RBA board members have reluctantly trudged back to Sydney for the first monetary policy meeting for the year. After bitching about the traffic for the first hour they’ll get down to business.
In summary – there will be no change to the cash rate target today, it will remain at 2.5%. It’s the accompanyng statement that is going to be the focus. What’ll they say?
For those ForexLive participants who may also have been lying on beaches for the past 8 weeks, a reminder that RBA has two official mandates – to paraphrase its getting the economy to full employment and keeping inflation under control.
Employment growth has been lacklustre as the economy struggles to transition from the dimunition of the mining investment boom. Inflation has been reasonably tame, benefiting from the rising AUD … but recent signs are of it heating up. I don’t know how much rising inflation is going to be an immediate concern for the RBA, and even the economists/analysts out there are split – some saying the rise in prices from ‘government inflation’ is likely to be short-lived, some saying, on the other hand, domestic, non-tradeable inflation is looking entrenched.
What does recent data show?
- Q4 headline CPI: 0.8% q/q ( 2.7% y/y)
- and Q4 Trimmed Mean CPI: 0.9% q/q (2.6% y/y)
- these are official data points from the Australian Bureau of Statistics, we get them four times per year (each quarter … d’uh).
Because we only get them 4 times per year, we also look to the monthly TD Securities/Melbourne Institute (MI) Inflation Gauge, which, as it happens, was published with January results yesterday:
- for the m/m came in at +0.1% and 2.7% y/y
- and, for the ‘trimmed mean – which is the RBA’s preferred measure – it came in at flat (0.0%) for the m/m in January, and at 2.7% y/y).
- The m/m doesn’t look bad, but the y/y, at 2.7%, is in the upper half of the RBA’s inflation target band of 2 to 3%.
OK, I haven’t quite done with inflation yet…
Its not the inflation rate that the RBA looks at alone … they also make judgements about what the expected path for the inflation rate will be. So, while the jump in official inflation is a concern (somewhat tempered by the flat m/m TD/MI Inflation Gauge), they’ll be considering what may happen in coming months (especially in light of the recent falls in the AUD).
How about the economy, how is that ‘transition going’? I posted a bit of a summary here, noting the positives and negatives. Yesterday we got further confirmation of a negative (AIG manufacturing PMI shows 3rd consecutive fall).
In summary on the economy:
- employment growth weak
- inflation showing signs of edging higher
- Some positive signs in the economy, some negatives
Also:
- The AUD has declined, as the RBA has desired. It is no longer ‘uncomfortably high’ and I expect that line will disappear from the statement. They may still want it a little lower, and they for sure do not want it to start to gain again so soon .. but the days of ‘uncomfortably high’ have passed (for now).
- House price gains persist – this is something they will monitor, its not a driving factor on their decision at present
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OK, the. Depending on your bias, you can scream for lower rates or you can scream for higher rates. A more dispassionate view, though (where one chops off the emotion and tries not to scream either way), would note the conflicting signals the RBA is receiving, which at least is an improvement on the many more negatives (accompanied by low inflation) signals they were receiving in 2013.
At the very least, it seems reasonable to expect further confirmation that they have moved away from an easing bias towards more neutral. I don’t expect they’ll move to the hawkish end of the spectrum, just move further away from an easing bias towards neutral (for the pedants, yes moving from dovish to neutral is in a hawkish direction).
So, what to expect?
- A neutral sort of statement – the easing bias is well off the table now, but its not time to be hawkish.
- The AUD will not be described as ‘uncomfortably high’
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I’ll have more on the RBA as we approach announcement time
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