Thoughts on the RBA monetary policy board meeting on Tuesday from ANZ

(in brief)

  • Expect the RBA to hold the cash rate steady
  • To retain its (soft) easing bias
  • Do not expect any meaningful changes to the statement
  • Persistently low inflation is likely to keep the RBA's easing bias intact, but tentative signs of some wage inflation as well as the sharp improvement incommodity prices are likely to keep the RBA on the sidelines for some time
  • Financial stability concerns also remain an important counterbalance to weak inflation
  • House prices continue to grow strongly, especially in Sydney and Melbourne, driven largely by investor lending, suggesting that further rate cuts are unlikely

More from the note:

Last week's data showed:

  • A bounce in business conditions (relatively broad-based gains)
  • Strongly rising house prices (Concerns over financial stability remain important and ongoing strength in house prices in our view is a key reason behind the RBA's reluctance to cut rates)
  • The impact of sharply rising commodity prices on the trade balance (The Bank will welcome the positive impact that higher commodity prices will have on national income, after the last few years when prices have weighed on company profits, government revenues and wages and crimped the overall economy)

Will give the RBA some comfort that growth remains solid, despite the very weak Q3 GDP outcome, and that eventually inflation will return inside the target band.

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ANZ also note that later in the week we get the RBA's Statement on Monetary Policy

(February 10), which will "provide updates on the RBA's current assessment of the economy"

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On Friday Reuters noted that all economists survey expect the RBA to be on hold this week:

  • Here's an RBA preview (February 7 meeting) - All economists say rates on hold