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Stevens Clarity Takes Sport Out of RBA Watch: Australia Credit

Reserve Bank of Australia Governor Glenn Stevens
Reserve Bank of Australia Governor Glenn Stevens, who meets with his board in Sydney tomorrow to set policy, switched to a neutral bias in February and has repeated each month since that “a period of stability” in rates is likely. Photographer: Patrick Hamilton/Bloomberg

June 2 (Bloomberg) -- Glenn Stevens is taking the sport out of Australia’s interest-rate game, and reducing potential for profit, by joining global central-bank peers who’ve pledged clearer communication of policy.

Swings in interest rates for sovereign debt due in one to three years fell to the least since July 2008 last month while the Australian dollar’s implied volatility declined to a seven-year low. Swaps traders are betting there’s no chance of a rate increase over the next 12 months after predicting an 88 percent probability of a move higher as recently as April 10, a Credit Suisse Group AG index shows.

Reserve Bank of Australia Governor Stevens, who meets with his board in Sydney tomorrow to set policy, switched to a neutral bias in February and has repeated each month since that “a period of stability” in rates is likely. A housing pickup and improving domestic demand is helping cushion the world’s 12th largest economy, as mining investment wanes and the government curbs spending to trim a deficit.

“Reserve Bank statements have become clearer, with more forward guidance,” said Shane Oliver, who helps oversee about $133 billion as head of investment strategy at AMP Capital Investors Ltd. in Sydney. In the past, the RBA “almost seemed like it was trying to perplex people. There was a desire there to not let the market get too confident. That certainly hasn’t been the case lately,” he said.

Weaker Housing

Private and government data released today showed a cooling in Australia’s property industry. Building approvals fell 5.6 percent in April, the third consecutive monthly drop, and house prices in major cities declined 1.9 percent in May, the biggest fall since the 2008 financial crisis.

The Group of 20 nations in February said monetary policy should remain accommodative for now in many advanced economies and pledged a coordinated push to boost growth by more than $2 trillion over the next five years. Central banks in the G-20 said they’re committed to carefully calibrated and communicated monetary policy, mindful of the effects on the global economy.

Thirty-day yield volatility for Australian government bonds maturing in one to three years fell to 11.17 percent on May 16, the lowest since July 2008, and down from 32.43 percent on Feb. 24 this year. The Aussie dollar’s implied volatility over three months touched 6.71 percent today, the least since March 2007.

Best Performer

The Australian dollar traded at 92.64 U.S. cents at 1 p.m. in Sydney. It has gained almost 4 percent this year, the best performer among 10 major currencies, as expectations firmed the RBA’s two-year rate-cutting cycle is at an end.

Swaps traders were pricing in virtually no chance of a move in the 2.5 percent cash rate at tomorrow’s meeting. All 32 economists surveyed by Bloomberg see it held at a record low.

Online gambling site Sportsbet is paying A$1.001 odds on a hold at tomorrow’s meeting, meaning a correct A$10 wager would pay out one Australian cent. It was paying A$9 for an increase and A$13 for a cut of between 1 and 25 basis points.

“The RBA sought to strengthen its forward guidance in the suite of communication provided in May,” Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney, said in a research report. “So whilst reassuring tones of policy traction will likely be repeated, the overarching message should remain that a 2.5 percent cash rate will persist for several more months yet.”

Yellen, Carney

From Federal Reserve Chair Janet Yellen to Bank of England Governor Mark Carney, central bank chiefs are signaling their intentions more clearly as they move toward unwinding unprecedented policy stimulus. Stevens, who last moved rates in August, said in last month’s statement that “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.”

The new clarity has seen economists abandon expectations of further rate cuts. Westpac Banking Corp., National Australia Bank Ltd. and Bank of America Merrill Lynch economists -- with a century in combined experience -- now see the RBA on hold even as they maintain expectations for sub-par growth.

Australia’s treasurer last month announced cuts to spending on welfare and the public service and a new tax on the highest paid, adding fiscal consolidation to a slump in mining investment as brakes on growth. Consumer confidence fell to its lowest level since August 2011, prior to the central bank’s most recent easing cycle, after the budget’s May 13 release.

The labor market has held up, with the jobless rate remaining at a better-than-expected 5.8 percent in April. Lending too is responding to low borrowing costs, with private-sector credit expanding 4.6 percent in April from a year earlier, the fastest pace since March 2009, central bank data showed May 30.

Growth Rebalancing

Australia’s gross domestic product rose 0.9 percent in the first quarter from the final three months of last year and 3.2 percent from 12 months earlier, economists predicted ahead of a government report on June 4. Trend growth in Australia is traditionally seen at just over 3 percent.

“Growth is in the process of rebalancing as a result of the RBA’s current low interest rate setting,” Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney and a former RBA economist, said in a May 30 research report. “We see the cash rate steady at 2.5 percent and the RBA repeating that rates are likely to be stable for ‘some time.’”

To contact the reporter on this story: Michael Heath in Sydney at

To contact the editors responsible for this story: Stephanie Phang at Malcolm Scott, Garfield Reynolds

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