The Reserve Bank of Australia (RBA) decided to leave the cash rate at 4.75% following today’s board meeting. Furthermore, the statement that accompanied the rate decision was little changed from last month’s statement (see summary tables below), including the concluding paragraph:
“At today’s meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation. ”
Key details of the accompanying statement
Figures 1 and 2 summarise our assessment of RBA thinking with respect to key macroeconomic variables relative to the previous statement.
Figure 1: Changes in RBA’s assessment of key offshore macroeconomic variables
Figure 2: Changes in RBA’s assessment of key onshore macroeconomic variables
Post-meeting bottom line:
Today’s accompanying statement offered up very little new information. The RBA did however acknowledge the government’s reiterated intention to return the budget balance to surplus by June 2013 stating that “The impetus from earlier Australian Government spending programs is now also abating, as had been intended.”
Overall, there is nothing in today’s statement that changes our view that the RBA intends to tighten policy again. The RBA’s underlying inflation forecast 9m ahead is sufficiently high to warrant a near-term tightening. The question of when remains open. Why the RBA is not acting in its usual pre-emptive fashion to an anticipated pick-up in underlying inflation is far from clear. Downside risks to the RBA’s growth and inflation forecasts are possible reasons, but we have no indication of that as yet. We, like the market, will roll our rate hike expectations to the July meeting. At some point the RBA’s inflation forecast will become reality if it does not act on its forecast.
BARCLAYS CAPITAL
ECONOMICS RESEARCH | INSTANT INSIGHTS