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RBA: Unchanged Rates Resulted In CPI Undershoot, Need More Good Inflation News

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Deputy Governor Hauser has just spoken with Bloomberg and confirmed that the Board reached a “clear consensus” to cut rates on Tuesday and one of the main reasons for the move was a scenario where policy was not eased and it resulted in inflation coming in below the band mid-point at 2.5%. Going forward though, he doesn’t share the market’s confidence about rate cuts and that there won’t be one piece of data that will trigger the next move. The RBA continues to focus “rigorously on inflation”.

  • Hauser reiterated that the rate path currently priced in by markets resulted in underlying inflation staying above 2.5% but the central bank could be “wrong” and if it is then the Board will respond, but market pricing is currently not its central case. But contained inflation is not a “done deal yet” and more good news on this front is needed.
  • He said that today’s January labour market data was “incredibly strong” and more data is needed to understand if there is spare capacity.
  • The RBA is “sure” that its policy is still restrictive but with estimates of the neutral rate ranging from 1% to 4%, it is too “vague” to be useful and little weight is put on those approximations.
  • There are so many unknowns that tariff scenario analysis results in a huge range of outcomes and the RBA is waiting to see how trade policy develops. But the uncertainty is a problem, as it is likely to delay economic decisions which could way on growth. Hauser pointed out thought that historically Australia has been flexible in adjusting to changing global conditions. 
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Deputy Governor Hauser has just spoken with Bloomberg and confirmed that the Board reached a “clear consensus” to cut rates on Tuesday and one of the main reasons for the move was a scenario where policy was not eased and it resulted in inflation coming in below the band mid-point at 2.5%. Going forward though, he doesn’t share the market’s confidence about rate cuts and that there won’t be one piece of data that will trigger the next move. The RBA continues to focus “rigorously on inflation”.

  • Hauser reiterated that the rate path currently priced in by markets resulted in underlying inflation staying above 2.5% but the central bank could be “wrong” and if it is then the Board will respond, but market pricing is currently not its central case. But contained inflation is not a “done deal yet” and more good news on this front is needed.
  • He said that today’s January labour market data was “incredibly strong” and more data is needed to understand if there is spare capacity.
  • The RBA is “sure” that its policy is still restrictive but with estimates of the neutral rate ranging from 1% to 4%, it is too “vague” to be useful and little weight is put on those approximations.
  • There are so many unknowns that tariff scenario analysis results in a huge range of outcomes and the RBA is waiting to see how trade policy develops. But the uncertainty is a problem, as it is likely to delay economic decisions which could way on growth. Hauser pointed out thought that historically Australia has been flexible in adjusting to changing global conditions.