RBA guidance is on a lighter side - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, notes that the RBA has provided little guidance in its policy statements since in cut rates twice in 2016 and has said in recent policy statements that, “Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

Key Quotes

“The market is not exactly pressuring the RBA to change policy with only a small chance of a hike expected until around May next year when a hike is around 50% priced in.  As such we doubt that the RBA will change this wording; they prefer to provide less guidance than most other central banks, presumably to allow them more flexibility to react to shifting conditions.”

“However, Governor Lowe and Deputy Debelle felt compelled to say that policy does not need to automatically respond to policy normalization abroad in recent speeches, and slack remains in the labour market.  The exchange rate did rise after the RBA July policy minutes were released, and they may be concerned that the market is too influenced by global policy developments.  As such, the RBA could revert to guiding the market towards no change in policy for some time.  It could say that a period of stable interest rates is the most prudent course.”

“This would be a significant surprise to the market.  Coupled with a more direct statement on the exchange rate, it would generate knee-jerk selling in the AUD.”