There isn’t a significant expectation of a major change in policy after the RBA’s meeting, which concludes tomorrow. However, we still should approach the event – especially the policy statement – with a certain amount of caution.
A lot has happened since the last meeting. And the RBA might make some tweaks to their expectations that could influence the markets.
There is a unanimous consensus, both among Australian economists as well as global ones, that the RBA will hold rates at 0.25%.
There is no scheduled press conference afterward, which serves as confirmation.
What We Should Pay Attention To
Expectations are for the RBA to be cautious about the country’s economic outlook, which will reassure traders that interest rates will remain low for a long time.
There are two key things that we need to pay attention to:
1. Negative rates
So far Lowe and other members of the committee have said that negative rates might be necessary, but not yet. Given recent developments, there might be a change regarding their statements about negative rates being necessary in the foreseeable future.
Therefore, the market could interpret this as hawkish. Let’s not forget that there is still one-third of economists projecting negative rates in Australia by year-end.
2. Yield Curve Control
It’s been nearly three months since the RBA has made any significant acquisitions of debt on the market. That shows they are happy with the yield curve as it is. However, there is a chance that they might comment on tapering off bond buying, which, naturally, would be interpreted as hawkish as well.
That said, it’s not likely for the RBA to communicate something that can be subject to interpretation, such as tapering off asset buying, without holding a press conference so Governor Lowe can provide detail and explanation.
But a change in the language might just be enough to rile up the markets.
Why the potential for hawkishness?
Economic metrics that we’ve seen from June (the pivotal month of reopening) so far have been broadly positive.
PMIs (manufacturing and services) are back in growth territory, retail sales have grown healthily, beating expectations, and the trade surplus remains substantial, despite an expected drop in exports.
Building approvals were the only bit of gloom and continued to fall well beyond expectations. The housing industry has been under pressure for a long time now. And the fact that it’s not picking up despite record low-interest rates is a matter of concern for the long-term growth of the economy.
That might be a factor that the RBA considers in their guidance.
What About COVID?
On Friday, Australia reported a spike in cases, but they corresponded to adding old cases from ships, so it was just an “accounting” adjustment.
Melbourne continues to be a “hotspot”, concentrating over 70% of the new cases each day.
Over the weekend, cases were reported in three states; with 58% having contracted the disease overseas.