The communications from the August meeting indicated the Board was now in wait-and-see mode, with the decision statement noting it "will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time". In addition to domestic conditions, the meeting minutes that were released two weeks later highlighted an increased focus on developments from abroad; "Having eased monetary policy at the previous two meetings, the Board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy".
Key developments since the August meeting have been;
- From abroad; increased downside risks to the global economic outlook due to a significant escalation in US-China trade tensions (China announced retaliatory measures to earlier tariffs with the US then increasing existing tariffs), geopolitical uncertainty in the UK, Italy and Hong Kong, concerns around the efficacy of central banks to respond to these headwinds, and heightened volatility in markets with bond yields, most notably for long-dated securities, falling sharply. Underscoring these developments, the spread between the US 10-year and 2-year yield inverted for the first time since 2007, which some participants in markets viewed as a warning signal of an upcoming US recession.
- Domestically; employment increased by a much stronger-than-expected net 41.1k in July after falling by 2.3k in the previous month. The unemployment rate remained at 5.2%, however a new record high in workforce participation at 66.1% resulted in the underemployment rate rising from 8.2% to 8.4% and the underutilisation rate lifting from 13.4% to 13.6% (for full details see here). As a result, Q2's update of the Wage Price Index highlighted that elevated spare capacity remains a headwind for wages growth after rising by a subdued 0.6% in the quarter and 2.3% over the year (see here).
All considered, it seems unlikely the Board would move to cut rates today — not least because its growth and inflation forecasts from August's quarterly Statement on Monetary Policy were published less than a month ago, with only a handful of data updates released since. The most pertinent of those were the labour market data described above, though they were indicative of a continuation of below-capacity conditions rather than a marked deterioration. Note, however, that tomorrow's National Accounts have the potential to reshape the Bank's outlook given that its forecast for GDP growth in Q2 at 1.7% in annual terms is well above the consensus forecast for 1.4%. A key point of interest in the governor's statement today will be comments around global economic conditions and the outlook for growth given the developments that have occured since August's meeting and the increased focus of the Board on the implications for the Australian economy.
For reference, pricing on cash rate futures indicates only a 13% chance of a 25 basis point rate cut at today's meeting, while 27 out of 31 forecasters surveyed by Bloomberg Australia expect the cash rate to stay on hold at 1.0%.