While the result of last week’s Reserve Bank board meeting might have been a given, the longer term outcomes are also becoming clearer. If we are to believe the current interbank futures market, it is becoming more likely that records will be broken in 2018, as the RBA appears less likely to move the official cash rate in either direction any time soon. This will make it the longest period in the RBA’s history that the cash rate has remained unchanged.
Reading into last week’s RBA statement, comments such as:
- “Holding the stance of monetary policy unchanged … would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
- “Wage growth remains low in most countries, as does core inflation ... stronger conditions in the labour market should see some lift in wages growth over time”.
- “Forecasts for growth remain largely unchanged…and likely to average around 3% over the next few years”.
These quotes provide the framework for future expectations of the RBA’s forecasts. While most economists now predict the next move in rates as up, both wage growth and core inflation remain a clear concern for the RBA, giving them little scope to change monetary policy any time soon.
The futures market currently has the first rate increase not fully priced in until early 2019, a marked change from two months ago when a rate increase was priced in by August 2018.