RBA Pauses But Keeps Options Open And Remains Data Dependent

The RBA left rates unchanged at 3.6%, which was the first time since April 2022. However, it continued to warn about the dangers of high inflation and state that it remains “resolute” in bringing it back to target. It was less definite about further tightening saying that it “may well be needed”, thus giving it both options of staying on hold or tightening. Q1 CPI data on April 26 is likely to be key to the May 2 meeting. RBA Governor Lowe speaks on Wednesday at 1230 AEST.

• The RBA paused its tightening cycle due to numerous indicators signalling that inflation has peaked and that consumption has slowed. The statement excluded the paragraph regarding uncertainty around the consumer and the positive & negative drivers. The Board also said that given the 350bp of cumulative tightening and that it is yet to be fully felt, it had decided to “provide additional time to assess the impact”. Given rates are restrictive, the RBA can now watch and wait.
• While the Board said that Australia’s “banking system is strong”, it did note that recent troubles overseas are likely to tighten financial conditions and weigh on global growth. Thus adding to global uncertainties it has been stating for some time.
• The strong rise in rents was observed again but utilities were added as sectors where prices are “rising quickly”. These are both areas of concern that Governor Lowe has mentioned before.
• Wages are still being monitored closely and the statement reiterated that the labour market remains tight, while excluding the phrase from March that “conditions have eased a little”.
• The RBA continues to seek to return inflation to target while keeping the “economy on an even keel”. It remains on a “narrow path”. “When and how much further interest rates need to increase” will continue to depend on the global economy, consumption and the outlook for inflation and the labour market.
• See RBA statement here.