The Reserve Bank of Australia announce their May decision today, due at 0430GMT
- Will be accompanied (as usual) by a Statement from RBA Governor Lowe
Note a couple of other significant RBA releases this week are still to come:
- Governor Lowe speaks on Thursday (to the Economic Society (Queensland) Business Lunch, titled Household Debt, Housing Prices and Resilience)
- The Bank releases its quarterly Statement on Monetary Policy (SOMP) on Friday)
Here is a preview of today's decision and statement, this via CBA (in summary):
- Cash rate should be left at a record low of 1.5% for the 9th consecutive month
- And monetary polic views are likely to end the week little changed
- The RBA's GOP near-term GDP forecasts may be nudged up a little
- But underlying CPI projections look to be on track
- A replay of 2016 where the surprisingly weak Q1CPI raised fears of deflation, saw the RBA take the axe to its inflation forecasts and then deliver two swift rate cuts is not on. Indeed the Q12017 GPI reading should have given policy makers some comfort. Headline inflation is back in the target band for the first time since Q32014. And underlying inflation rates are slowly edging higher.
And, CBA on what to expect later also:
- Economist's consensus and market pricing has the RBA sitting on the sidelines over the balance of 2017
- And certainly if we end the year "on hold" then the debate in 2018 should be about when the RBA will start following the Fed in Ring interest rates
- Governor Lowe's speech on Thursday will emphasise why there is little chance of a further rate cut short of some economic catastrophe
- Lowe is concerned about the high levels of household debt, overly rapid growth in house prices and the potential threat to the economy and financial system - does not want to cut interest rates
- There is some risk of the message being diluted a little
- Price growth in some of the "hot" parts of the housing market did slow in April
- But getting a clear read is difficult with Easter having some impact
- Leading indicators such as auction clearance rates are yet to fall to levels consistent with a permanent loss of price momentum
- The RBA has always placed a great deal of importance on financial stability. And Governor Lowe does appear to have elevated this importance during his tenure. But we suspect his current concerns are more to do with macroeconomic risks. The RBA's recent Financial Stability Review concluded that Australian banks remain well placed to manage the various challenges they face. The issue is more to do with how high debt levels and the overweight share of housing investor activity can amplify the effects of any "shock° on the business cycle.
