RBA Stood Pat on Rates Again but Kept More Tightening In Play
RBA Stood Pat, More Hikes Not Ruled Out
The Reserve Bank of Australia has made significant progress in cooling price pressures, since the Consumer Price Index moderated to 4.1% in Q4. Furthermore, the economy has been facing headwinds and grew by just 0.2% q/q in Q3, marking the slowest pace in two years. Labor market conditions are easing, with the last report revealing the loss of 65,100 jobs in December and the worst since September 2021.
The central bank has produced 425 basis points of tightening since the May 2022 lift-off, in order to bring down inflation. Given the cumulative tightening, the lags in the transmission mechanism and the above economic data, policymakers decided on Tuesday to keep rates unchanged at 4.35% for second straight time. [1]
They acknowledged the easing of inflation and expect it to return to the 2-3% goal by the end of 2025, lowering their projections through the forecast period. These projections are conditioned on market pricing that rates have peaked and will be lowered in the second half of the year. [2]
However, the labor market is "tighter" than what would be consistent with the RBA's mandate, wage growth is elevated and inflation"remains high". Echoing their US peers, officials noted that they "need to be confident" inflation is moving "sustainably" towards the target range. Going a step further, they stressed that "a further increase in interest rates cannot be ruled out". During her press conference, Governor Bullock warned that officials have "more work to do" and "a little way to go" to get inflation down. [3]
The Reserve Bank of Australia is at an intricate phase and has adopted a non-committal stance, having already delivered a significant amount of tightening. Lower inflation, a labor market that is coming into better balance and economic headwinds, point to peak rates and eventually cuts, which is what markets are pricing. On the other hand, policymakers don't expect inflation to return to target for nearly two more years, which leads them to keep hikes on the table and makes any cut talk premature.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 06 Feb 2024 https://www.rba.gov.au/media-releases/2024/mr-24-01.html | |
| Retrieved 06 Feb 2024 https://www.rba.gov.au/publications/smp/2024/feb/pdf/statement-on-monetary-policy-2024-02.pdf | |
| Retrieved 27 Apr 2024 https://rba.livecrowdevents.tv/MediaConferenceMonetaryPolicyDecision6feb/stream |
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