Reserve Bank of Australia policy announcement and accompanying statement from Governor Glenn Stevens due at 0330GMT

  • Latest expectations show the majority of survey participants (Reuters, MNI and Bloomberg) expect no cut today. The most recent survey I have seen is the Bloomberg one, with 17 of 28 saying no cut.
  • Market pricing on the probability of a cut has been hovering around 50% (latest I have is 44% for a cut)
  • None of the major 4 Australian banks are forecasting a cut today, with 3 of them seeing the RBA on hold for an extended period while ANZ is tipping cuts in 2016

Those looking for a rate cut cite, in particular (with the background of sub-par economic growth, China concerns, weak commodity prices):

  • The out of cycle mortgage rate hikes from the four major Australian banks in the past two weeks or so
  • The lower than expected inflation result last week
  • They argue the mortgage rate hikes have tightened financial conditions. And the low inflation removes a hurdle for the RBA to hike (A hurdle that was really wasn't there anyway, inflation has been well contained in Australia, not to mention nearly the whole world, for a good while now).

Those looking for no cut today, while recognizing all of the above cite:

  • The mortgage rate hikes from the banks have tightened financial conditions by around 0.1 - 0.15 %, not enough to trigger an RBA cut
  • The RBA is not unhappy with the bump in mortgage rates and the tightening of lending, particularly to the housing investment sector, there have been concerns in the bank about strong house price growth in the big Sydney and Melbourne markets and while this has eased, prices are still going north in these markets.
  • Business and consumer confidence is on an improving trend
  • Business conditions are on an improving trend
  • Credit to business is increasing
  • Confidence has also been boosted by the change in government leadership

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The decision is going to be a very close one today.

I'm on the 'no cut' side but with a recognition of how close its going to be. I think the language used in the accompanying statement is likely to be more dovish than it has been.

Note; On Friday of this week we'll be getting the November Statement on Monetary Policy (SoMP) which will include updates to economic the bank's economic assessments and forecasts. I expect we'll see a downgrade to growth expectations.