Preview of the Reserve Bank of Australia announcement due today (04 August 2015) at 0430GMT
The short story is the RBA is expected to announce no change in policy today. Rates will be left unchanged, with the accompanying statement likely to say that they retain the option to cut in the future, if they judge one necessary.
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At today's meeting the RBA will have fresh, updated, forecasts on the economy. These will show a downgrade to the growth forecast, which supports the case for further cuts. But the RBA will likely hold off on any cut this month, they are in 'wait and see' mode after two cuts already this year. The bank is also expressing concern that further cuts in rates will fuel financial instability, via surging borrowing for property investment (though macro prudential tools are having some impact in this area) and also that there are diminishing marginal returns to further cuts (i.e. maybe a further cut (or cuts) will have less positive impact on the economy than has previously been the case).
Further, even though growth forecasts are likely to be lowered, Stevens said last week that the Australian economy may be on a new normal of lower growth rates.
So, no cut today.
But ... the option of further cuts will not be ruled out ....In June, RBA Governor Stevens said
- "We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth"
Then, just two weeks ago he reitereated this point. Speaking on rates he said again:
- "The question of whether they might be reduced further remains, as I have said before, on the table"
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For the AUD ... a surprise (shock) decision would be a cut (see above) , which would precipitate an immediate and sharp marking lower. As it stands, if we get what is expected then look for continued sideways to lower for the AUD/USD. I'll have levels to watch as we approach announcement time.
