Governor Michele Bullock is likely to provide hawkish statements following any cut next week, to ward off further market anticipation of much deeper easing. The revised Statement on Monetary Policy to be published alongside the decision could also shift the RBA's inflation and labour market outlook.
The RBA has held the cash rate since November 2023 and has not eased since November 2020. Bullock shifted to a slightly dovish tone at the December 2024 meeting. (See MNI RBA WATCH: Board Holds, But Turns Slightly Dovish)
UNDERLYING INFLATION
Trimmed-mean inflation, the RBA’s preferred measure, printed at 0.5% q/q over Q4, 10 basis points lower than expected, and down from Q3’s 0.8%, data from the Australian Bureau of Statistics showed in late January. The measure was 3.2% on a year-ended basis, down 30bp over Q3 and better than the RBA’s expected 3.4%. Headline inflation was 2.4% y/y.
A former RBA official had noted in late 2024 that a 0.5% q/q result would pressure the Reserve to cut at the February meeting. (See MNI INTERVIEW: Q4 CPI On Track To Surprise - Ex-RBA Economist)
LABOUR CONCERNS
But wage increases have not fallen fast enough against a background of weak productivity growth to pull down unit labour costs, a key factor driving inflation. (See MNI INTERVIEW: Market Overestimating RBA Feb Rate Cut Chance)
The unemployment rate rose 10 basis points over December to 4.0% in January, while the economy added 56,326 jobs, more than the 15,000 expected, ABS data showed.
The RBA is likely to have to shift its view on the labour market, which it has for some time seen as overly tight, if the Board elects to cut the rate next week. The strength of employment will feature heavily in Bullock's message following the decision, no matter if the Board elects to cut or not.
STRONG-ARMED
The RBA does not want to cut next week and would prefer to gauge wage strength and monitor the labour market further, former officials say, however, political, social and market influence will weigh heavily on its decision.
At 4.35%, the cash rate is hardly restrictive – a fact Bullock is likely to reiterate. While the Board may be tempted to cut again in May following Q1 CPI numbers, global economic uncertainty could see it pause until well into the second half.
The Board will next decide the cash rate April 1.