MNI STATE OF PLAY: Wages Data Allows Dovish RBA March Review

Concerns on geopolitical volatility due to Russia's invasion of Ukraine and underwhelming wages data last week are likely to see the Reserve Bank of Australia maintain its dovish outlook at this week’s board meeting.

Despite stronger than expected inflation, with trimmed mean inflation at 2.6% against the RBA’s 2% to 3% target, wages growth is still flat with 0.7% growth in the December quarter for an annualised 2.3% rise.

The RBA has consistently said that wages growth of around 3% is needed for it to consider that inflation is sustainably within its target range, creating conditions for interest rates to rise from the record low of 0.10%.

While wages growth is still sluggish, other economic indicators are strong. Retail sales were up 1.8% in January, much higher than forecast, and housing credit is rising at 7.7% as the house price boom continues.

HIKES AND BONDS

Although the RBA has not ruled out an interest rate rise this year, the message from Governor Philip Lowe is that it is more likely to be in 2023 or even as late as 2024, see: MNI STATE OF PLAY: RBA Stays Firm On Cash Rate View, Drops QE.

At its last meeting in February the RBA also ended its bond buying programme, which has seen it purchase A$350 billion in government and semi-government bonds. The March 1 meeting may see some comment on the bond portfolio, but the RBA has said that it will reveal more on its plans for unwinding the bond portfolio at its May meeting, ahead of the maturing of a big tranche of bonds mid-year.

GDP data is also due on Wednesday, the day after the RBA board meets, and is expected to show a rebound of 3% in the fourth quarter as pandemic restrictions have eased and the economy has opened. The economy contracted 1.9% in the September quarter.