While the RBA is likely to leave all monetary policy measures unchanged at this week’s meeting, the quarterly Statement on Monetary Policy (due May 7) would be closely watched. We expect policymakers to upgrade economic assessments moderately and pledge to monitor rising home prices.
Economic developments have generally improved since the last meeting. On the job market, the unemployment rate decreased to 5.6% in March, from 5.8% a month. The number of payrolls rose +70.7K, doubling consensus of a +35K increase. The participation rate increased to 66.3%, suggesting improved confidence in the employment market. Monthly hours worked also increased by 38M hours. Consumer spending picked up with the preliminary reading of retail sales up +1.4% m/m in March, beating consensus of +1% and -0.8% decline in the prior month. The momentum would likely continue in the second quarter. The IHS Markit Manufacturing PMI jumped +2.9 points to a record high of 59.7 in April. As noted in the accompanying report, “demand rose both domestically and externally, reflecting resilient economic conditions”. It added that ‘the improvements in the outlook and hiring suggest that business confidence continues to pick up in the Australian economy”.
As both the unemployment rate and inflation would not reach RBA’s targets in the coming 2 years, the central bank would leave the monetary policy measures unchanged. As such, the cash rate target would stay at 0.1%. Correspondingly, the 3-year Australian Government Bond yield target (yield curve control) and the Term Funding Facility (TFF) interest rate would also remain at 0.1%. The size QE buying is kept at AUD100 until September.