RBA’s May meeting left cash rate unchanged: what will push the bank to hike rates further

The Reserve Bank of Australia left its policy rate unchanged at yesterday’s meeting, as was widely expected, almost unanimously.

ICYMI:

• ForexLive European FX News Roundup: Aussie Falls Marginally as RBA Keeps Policy Changes

In summary of Westpac’s response, I’m in bold… on what will lead to a further rate rise:

• The RBA board… has strengthened its discourse on the risks of rising inflation.
• The press release highlights that inflation is falling, but more slowly than expected. Services inflation is only gradually moderating, driven by a labor market that the RBA now believes is tighter than previously thought.

• Monetary policy is considered restrictive and the current level of the spot interest rate is seen as favoring continued progress in bringing inflation back towards the 2-3% target.

• At the press conference, the governor confirmed that a rate hike and keeping rates unchanged were discussed at the meeting, with the Board ultimately deciding to keep them.
• The forward-looking parts of the statement continue to emphasize that the Council is not ruling out anything in terms of future policy.
• Although recent inflation and labor market data have produced some positive surprises, these have occurred against a backdrop of weak domestic demand and a still clearly downward inflation trajectory.
• Overall, we consider the political decision to be balanced. As the governor pointed out during the press conference, hopefully they won’t need to raise rates further, but they will act if necessary. Likewise, in our view, the most likely outcome would be unchanged rates for a period of time, but further upside surprises will change the calculus.

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Earlier:

• RBA suspended in May – next step will be a rate cut
• Commonwealth Bank of Australia RBA Response – Interest Rate Cut Expected in November

This article was written by Eamonn Sheridan at www.forexlive.com.

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