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RBA: Rates Unchanged, Dovish Shift

RBA
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We said in our RBA Preview that the first step for a move towards easing would be the removal of the phrase “not ruling anything in or out”. The Board did that in its December statement as well as its vigilance to upside inflation risks. It now appears to have gained “some confidence” that inflation is “moving sustainably towards target”. However, underlying price pressures remain “too high” and it is likely to be “some time before inflation is sustainably in the target range”.  

  • The next RBA meeting is on February 18, which will include an updated outlook, and Q4 CPI will print on January 29 and Q4 retail sales volumes on February 3. Currently the RBA is forecasting trimmed mean at 3.4% y/y. A material downside surprise with services inflation trending lower may be enough for easing to start. The following meeting is April 1, after Q4 wages and GDP, which may make this date more likely.
  • Q3 wages and growth printing below RBA expectations appear to have driven the Board’s dovish shift. As a result, there seem fewer uncertainties over the effectiveness of monetary policy “working”.
  • The removal of “vigilant to upside risks” has been replaced with “risks remain”, so we’re not there yet. In terms of those risks, the commentary on the labour market was unchanged noting recent stabilisation and conditions remaining tight. Weak productivity is still a concern.
  • The Board observed that Q3 growth was the “slowest” since the early 1990s, except for Covid. Aggregate consumption being “more resilient” was removed but while Q3 consumption was “slower than forecast”, October/November data are signalling a “pick-up”.
  • See full statement here.
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We said in our RBA Preview that the first step for a move towards easing would be the removal of the phrase “not ruling anything in or out”. The Board did that in its December statement as well as its vigilance to upside inflation risks. It now appears to have gained “some confidence” that inflation is “moving sustainably towards target”. However, underlying price pressures remain “too high” and it is likely to be “some time before inflation is sustainably in the target range”.  

  • The next RBA meeting is on February 18, which will include an updated outlook, and Q4 CPI will print on January 29 and Q4 retail sales volumes on February 3. Currently the RBA is forecasting trimmed mean at 3.4% y/y. A material downside surprise with services inflation trending lower may be enough for easing to start. The following meeting is April 1, after Q4 wages and GDP, which may make this date more likely.
  • Q3 wages and growth printing below RBA expectations appear to have driven the Board’s dovish shift. As a result, there seem fewer uncertainties over the effectiveness of monetary policy “working”.
  • The removal of “vigilant to upside risks” has been replaced with “risks remain”, so we’re not there yet. In terms of those risks, the commentary on the labour market was unchanged noting recent stabilisation and conditions remaining tight. Weak productivity is still a concern.
  • The Board observed that Q3 growth was the “slowest” since the early 1990s, except for Covid. Aggregate consumption being “more resilient” was removed but while Q3 consumption was “slower than forecast”, October/November data are signalling a “pick-up”.
  • See full statement here.