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RBA to remain neutral, AUD viewed as high - Nomura

FXStreet (Bali) - Charles St-Arnaud, Senior Economist at Nomura, notes that today's RBA policy decision will remain neutral, adding that a weaker AUD will be welcomed, but likely still viewed as high by policy makers.

Key Quotes

"The Reserve Bank of Australia (RBA) will hold its next monetary policy meeting on 7 October. At its board meeting in September, the RBA left its policy rate unchanged at 2.50% and stated that "monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”.

"The RBA also kept intact the wording on the concern about the level of the exchange rate, reiterating that “The exchange rate, on the other hand, remains above most estimates of its fundamental value, particularly given the declines in key commodity prices. It is offering less assistance than would normally be expected in achieving balanced growth in the economy”.

"With AUD having depreciated by about 6% against USD and by more than 4% on a trade-weighted basis, the RBA will have to modify its message on the currency."

"Our view is that the central bank will acknowledge the positive development of a lower exchange rate, but is likely to reiterate that it remains high by historical standard and in relation to lower commodity prices, and add that the depreciation “will assist in achieving balanced growth in the economy”.

"Indicators received since the August meeting have been mixed. As a result, we believe that the RBA's policy stance remains firmly neutral and expect the central bank to leave monetary policy unchanged at next week‟s meeting."

"Moreover, we think the statement will continue to suggest that the RBA is not considering any changes to its policy stance and will very likely reiterate that “the most prudent course is likely to be a period of stability in interest rates”. The statement could also contain some reference to the RBA‟s discomfort regarding the housing market and that it is considering measures to cool it down. We continue to believe that the RBA will keep monetary policy unchanged this year and that the first hike will occur in late H1 2015."

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