Reserve Bank of Australia preview – straight forward decision, on hold with a neutral bias

These are the main summary points from the Commonwealth Bank of Australia Reserve Bank of Australia preview. Analysts at the bank expect the RBA to leave policy on hold and the neutral bias to be kept

• We expect the RBA Board will leave the cash rate unchanged next week in a straight forward decision.
• The Q1 24 national accounts and recent labour market data were largely in line with the RBA’s latest economic forecasts.
• The June Board meeting comes in the wake of the 2024 Federal Budget, which was a little more expansionary than anticipated. But we do not think the Budget has shifted the dial on the RBA’s assessment of the economic outlook.
• RBA Governor Bullock stated that she does not think the $300 energy bill relief will have, “a material impact on reducing (underlying) inflation, but it is also unlikely to make inflation worse”.
• We anticipate the RBA Board welcomed the Fair Work Commission’s June decision to increase the award wage by 3.75% in 2024 (i.e. the risk sat with a higher number and we think the Board will assess wages dynamics to be moving in the desired direction).
• We expect the Statement accompanying the decision to reiterate that the Board “is not ruling anything in or out”.
• The RBA puts much more weight on the quarterly CPI than the monthly CPI indicator. As such, we consider the next potentially ‘live’ meeting to be the August Board meeting (to be held the week after the Q2 24 CPI prints)

I find nothing to question in the summary preview (the actual CBA preview is a lot more detailed). On that final point, the meeting after the quarterly CPI indicator from the Australian Bureau of Statistics is published (due on Wednesday 31 July 2024 11:30 am Sydney time … 0130 GMT and 2130 US Eastern time on the Tuesday) is indeed the next ‘live’ meeting. While there are monthly CPI readings from Australia, the most recent was for April (3.6% y/y vs. 3.4% expected) its the quarterly data that is more complete and is viewed as the ‘official’ CPI rate. The monthly CPI data from Australia does not show all components of the CPI. The monthly reading includes updated prices for between 62 and 73 per cent of the weight of the quarterly CPI basket, its not the full picture.The data released July 31 will be for Q2.

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Earlier preview:

• Reserve Bank of Australia meet Monday & Tuesday, likely cash rate hold @ 4.35%, 12 yr high

This article was written by Eamonn Sheridan at www.forexlive.com.