April Outcome Depends On Data & Global Developments, Pause To Be Considered

The minutes from the RBA’s March meeting showed that the Board found it “appropriate” to hike rates another 25bp, there doesn’t seem to have been a discussion of other options. However, they did plan to discuss a pause at the April meeting considering the data and the global economy. So far the data likely warrant another hike in April, although retail sales and CPI are yet to be released, but “developments in the global economy” may be enough for the Board to pause to “reassess the outlook for the economy”. The SVB collapse occurred on March 10 only a few days following the meeting.

• The Board discussed the consumer outlook in detail and concluded that it remained a “key source of uncertainty”. Savings have not yet been “materially” draw down, but confidence was very low and retailers were reporting little growth but not uniformly so. It also noted that the labour market remained very tight, firms were close to full capacity and business conditions remained robust. It was still too early to tell how the various factors were going to “balance out”.
• Policy is restrictive and there has been substantial tightening since May but inflation is too high, especially core, and low productivity is contributing to this. Thus, in April a pause will be considered looking at employment, inflation, retail and business data, as Governor Lowe mentioned in his recent talk, as well as global developments. The minutes do state that “further tightening of monetary policy would likely be required to ensure that inflation returns to target”. Thus if there is a pause, it may not signal that the RBA is finished tightening.