It has been seven long years since the last increase in interest rates in Australia. Since November 2010, the RBA has either left interest rates on hold at its regularly monthly meetings, or has seen fit to cut them.
And so it will be with the RBA next week. The monthly RBA meeting on Tuesday and its Statement on Monetary Policy on Friday will help to frame market thinking on the monetary policy outlook. Recent news on inflation has seen a scaling back on market pricing for interest rate rises, even though global economic conditions remain positive and a growing number of central banks have been moving to tighten policy. A full 25 basis point interest rate hike is not priced into the market until early 2019.
Some wiser heads are still open to the possibility that the next move in rates will be down especially if inflation and wages growth remains low and the economy continues to splutter along. This is where the Statement on Monetary Policy, rather than the decisions of the RBA Board, are likely to be more interesting for market watchers.
