RBA Paused To Gather Information But Policy May Need To Be Tightened Again

The RBA discussed a 25bp hike or pausing its tightening cycle at its April 4 meeting but “on balance” decided to leave rates at 3.6% in order to “gather more information” on the economic outlook. The minutes also made a special point that “monetary policy may need to be tightened at subsequent meetings”. Q1 CPI, April labour market, consumption and business conditions data as well as the updated forecasts for the May meeting will be key in determining if there is further tightening on May 2, as this was the information listed that would be received before that meeting.

• The Board decided to pause to have more time to assess the economic outlook and the impact of the significant tightening to date given considerable uncertainties. It noted that policy was already “restrictive” and contributing to a “material slowing in consumption” and the housing market. Also, before the pandemic, it was usual for the bank to pause after a series of hikes.
• The discussion around another 25bp hike actually occurred before that of leaving rates at 3.6%. The minutes cited elevated inflation, the “very tight” labour market, the slow path to target, upside risks to inflation from housing and energy, households generally in a “strong financial position”, wages rises skewed to upside and the risk strong population growth posed to inflation all as reasons to tighten. While these observations persist, there is a good chance of another rate hike.
• As Deputy Governor Bullock said earlier, banking turmoil overseas was not a reason why the RBA paused as Australia’s banking sector remained strong.
• See minutes here.