RBA Preview: Major Banks expecting steady rates in June meeting

On Tuesday, the RBA is likely to hold rates steady in their June meeting, according to analysts and economists of major banks. In addition, they are also expecting softer comments from the RBA governor in their policy press release.

Westpac

“The RBA will hold rates unchanged at their June meeting, as they have since they last cut rates in August 2016. The Governor has stated that: "further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual". The case for patience has been reinforced by recent labour market updates, with unemployment stuck around 5.5%, and wages, which remain sluggish thereby constraining consumer spending. Moreover, tighter lending standards have been helpful in containing the build-up of risk in household balance sheets. This has seen a cooling of the housing sector, which is a headwind for the economy. We continue to expect the RBA to leave the cash rate unchanged at 1.50% throughout 2018 and 2019.”

Nomura

“We believe that a number of recent developments should see the RBA governor adopt a more cautious tone in Tuesday’s press release:

• US, Euro-area and Japanese data have been softer, on balance, over recent months, even as the most recent data from China has generally exceeded consensus expectations;
• Market volatility has appreciated notably;
• The terms of trade have likely slipped a little in the latest month due to lower iron ore prices, even as AUD and the TWI have risen a fraction from month-ago levels;
• Local activity and housing data have been a little softer on balance over the past month.

On balance, we suspect that the governor will want to convey that the RBA’s central case remains its most likely outcome, but that risks around the central case have grown. We believe the RBA is unlikely to want to add to the uncertain environment by using language that encourages markets and media to contemplate a higher cash rate. We suspect this is the reason behind its recent shift in language, in expressing benefits in holding the cash rate steady such that the RBA can “be a source of stability and confidence”

BBH

“The RBA meets Tuesday and is widely expected to keep rates steady at 1.5%.  The Australian dollar is the strongest of the majors as we start the week, ostensibly spurred by a series of stronger than expected data, including Q1 inventories (0.7% vs. expectations for a flat report), operating profits (5.9% vs 3.0% forecast) and uptick in job advertisements, and a 0.4% gain in retail sales after no gain in March and a 0.3% average gain in Q1 18 and 0.2% average monthly gain last year.”