RBA On Hold, Remains “Vigilant To Upside Risks”

The RBA left rates at 4.35% as was unanimously expected. Its hawkish neutral stance was unchanged reiterating that it is “not ruling anything in or out” and that the Board will “remain vigilant to upside risks to inflation”. It returned to acknowledging the uncertainties around the consumption outlook and reinforced its resolution to return inflation to target by adding that it “will do what is necessary to achieve” that outcome. The RBA remains highly data dependent and cautious and is yet to be confident that inflation is returning to target. It is taking things meeting by meeting.

• Key parts of the May statement were unchanged including that higher rates are working, excess demand persists, wage and productivity growth aren’t yet at sustainable rates, and return to target is “unlikely to be smooth”. Importantly, the Board is yet to feel “confident” that inflation will return to target and it will still be “some time before inflation is sustainably” in the corridor.
• The Board acknowledged the upward revisions to consumption in Q1 GDP and reverted to recognising the uncertainty around household spending. It noted the revisions and the persistent inflation “suggest that risks to the upside remain”. It notes numerous factors that should support expenditure going forward including July 1 tax cuts, wealth effects from rising house prices and lower inflation. But uncertainties mean there is also a risk it disappoints.
• Federal and state budgets “may also have an impact on demand” but energy “rebates will temporarily reduce headline inflation”.
• The RBA also added concerns that supply chains may be impacted by recent geopolitical uncertainties, which would add to price pressures.
• See full statement here.