RBA meeting announcement later today
Previews:
- Preview – Reserve Bank of Australia (RBA) announcement today
- “RBA Wins Room to Hold as Tighter Budget Seen”
- The RBA will have new data for their meeting and decision today
Reserve Bank of Australia (RBA) meeting tomorrow – “Australia RBA seen on hold even as tough budget
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Via MNI (Sophia Rodrigues), a good summary (they are excellent at MNI) of what the bank economists are expecting:
Economists expect the RBA to retain the general commentary on the economy, and reiterate its guidance that “on present indications, the most prudent course is likely to be a period of stability in interest rates”:
- Citigroup expect small changes to the RBA’s growth forecasts and the inflation forecast to be shaved slightly so that the top of the forecast range for end 2014 is lowered to 3%. Given these, there should be “no change next week (May 6) to the RBA’s rate guidance that a ‘period of stability in interest rates’ is appropriate,”
- Bank of America Merrill-Lynch economists, however, expect a lowering in the inflation forecast will “give the RBA comfort to keep rates lower for longer and indeed could give them scope to cut rates further if the economic outlook deteriorates.”
- JP Morgan economists have a similar view: “With inflation now looking much more tame, AUD rising, and still minimal signs that a growth transition is unfolding, a shift in tone can’t be ruled out.”
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There will be focus on the RBA’s commentary on the exchange rate, though most economists don’t expect the central bank to return to ‘jawboning’ the currency lower despite a likely trimming of the inflation forecast. Still, they will watch for any deviation from last month when the RBA said: “The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards.”
- HSBC’s chief economist Paul Bloxham said he expects the RBA to refrain from jawboning the Australian dollar lower as inflation, while lower than expected, is still close to target and growth is lifting.
- Westpac’s chief economist Bill Evans says it seems entirely reasonable that the bank will “revert back to using strong language around the level of the AUD – probably a return to the ‘uncomfortably high’ line.” He doesn’t expect a reintroduction of the easing bias though.
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Of most interest will be the RBA’s commentary on public spending as any possibility of a change in its tone towards a dovish view will be based on this. Indeed, despite the unanimous view that the RBA will retain the stable rate guidance, economists point to the risk from a budget which, according to recent media reports and government comments, may be tighter than expected. The Federal budget is due on May 13, a week after the RBA’s cash rate decision. The risk from a monetary policy perspective is whether the budget dampens household confidence and thus spending power, the one area the RBA is optimistic about, apart from housing construction. Reports suggest the government plans to impose a deficit levy on high income earners or increase the threshold amount to access the family tax benefit. Both are key risks to household spending.
- Citigroup economists say it is unlikely that tighter fiscal policy would trigger rate cuts but add that “front loading the budget pain by introducing an income tax levy does run considerable risks, particularly when in our view it is unnecessary.”
