Statement Less Hawkish Keeping Options Open, More Tightening Needed Though

The RBA hiked rates a further 25bp today bringing rates to 3.6%, the highest since May 2012. Cumulative tightening to date is now 350bp. The statement had a less hawkish tone following February’s guidance, allowing the Board to keep its options open. There is still more tightening to come to ensure inflation returns to target. At this stage, rates are likely to rise a further 25bp on April 4 but Q4 CPI data is not out until April 26.

• The statement in the final February paragraph that there would be “further increases” (plural) in rates has been dropped this month to the less specific “further tightening of monetary policy will be needed”. This not only tones down the February phrase but increases the Board’s flexibility.
• The weaker data over the last month was acknowledged extensively in the statement. Given the RBA has said previously that it prefers the quarterly CPI data, it noted that the January CPI had signalled that inflation had peaked without stating the series’ drawbacks. It also added that wages are consistent with the inflation target and that the recent data pointed to a lower risk of a wage-price spiral. However, the Board remains vigilant.
• The paragraph around the uncertainties regarding household spending was unchanged but the slowdown in Q4 GDP and the consumption component was acknowledged. But the RBA noted that the investment outlook was positive. While it reiterated that the labour market remains very tight, they did observe for the first time that “conditions have eased a little”.
• On the more hawkish side, Governor Lowe’s warning that he has made in talks often that if inflation isn’t contained then rates and unemployment will need to rise further was added to the March statement possibly in response to calls for a pause.
• See meeting statement here.