Coming into next week’s Reserve Bank of Australia (RBA) Board meeting, it is extremely difficult to envisage anything other than a decision to leave the policy rate unchanged at its current level of 4.10 per cent.
RBA Governor, Michele Bullock, portrayed the decision to cut the policy rate at the February meeting as a finely balanced one and sought to frame the bond market’s then expectation of rate cuts as more accelerated than the Bank’s (and presumably the Board’s) view of the expected pace of policy rate reduction.
Those comments were an effort to quash the well-known proclivity of financial markets to see policy rate cuts as a necessarily sequential exercise.
Since the February RBA Board meeting, there has not been a substantial enough augmentation of the economic information set to allow the RBA Board to consider any further policy rate reduction at its April meeting.
Key indicators released since the February meeting include:
- Wednesday’s release of the February monthly consumer price index (CPI) indicator. The annual trimmed-mean number came in at 2.7 per cent, which is more or less consistent with the RBA’s February projection.
- The February labour force data showed a surprising 52.8k decline in employment. That decline, however, seems to reflect supply-side factors associated with the withdrawal of the baby-boomer cohort from the workforce. The unemployment rate was unchanged at 4.1 per cent and probably reflects a more accurate picture of the state of the labour market and is also consistent with the RBA February projection.
- The December quarter wage price index (WPI), which was a little below expectations at 3.2 per cent. However, given abject productivity performance, the inflation portents of that number are not quite as positive as they would appear at first glance.
- March quarter GDP growth of 0.6 per cent or 1.3 per cent over the year. That is still a relatively tepid rate of growth, albeit that the March quarter was slightly better than expected. Again, it was probably in line with RBA projections.
- The Budget is not likely to have had a material impact on the RBA outlook. The tax and spending measures were modest enough, and while the Federal Government’s announcement of a six-month extension to electricity rebates will push out the timing of the bounce-back in CPI inflation, the RBA will look through this and continue to focus on trimmed-mean inflation.
All that seems to make the April RBA meeting a bit of a non-event.
Click here to read Stephen Miller’s full opinion piece.
