The country’s central bank left some economists scratching their heads on Tuesday after dropping another hint on the timing of interest rate hikes.
The Reserve Bank says inflation and wage growth are high enough to push interest rate hikes forward, but it dropped another clue as to why that’s not likely to happen until after the US federal election. May 21st.
The country’s central bank left some economists scratching their heads on Tuesday after minutes from its last meeting suggested its finger was on the interest rate trigger but was unlikely to contract during the meeting in two weeks.
Minutes of the April 5 meeting showed that RBA members accepted that inflation and wage growth were now, or soon would be, at a point that would require the interest rate to be raised for the first time in 12 years and far from adjustment emergency current of 0.1%.
But IFM chief economist Alex Joiner noted that the RBA’s subsequent pledge to monitor the economy “over the next few months” signaled there would be no rate hike the next month. May 3, although next week’s quarterly inflation figures are expected to exceed baseline targets.
“‘Over the next few months’ (is) an understatement for after the election,” Joiner wrote on Twitter.
“Printing the CPI next week would normally result in an immediate decision.
“If the RBA’s unwritten rule is not to move rates during an election period, even if the data warrants it, and especially since it is a decision to gradually raise rates from at an all-time high, so maybe the bank shouldn’t be meeting during election months?”
There has been no rise in Australia’s election campaign rate since November 2007, which preceded the ousting of then-Liberal Prime Minister John Howard.
Stephen Koukoulas, former economic adviser to Labor Prime Minister Julia Gillard, said the RBA had made a mistake in not moving sooner this time around.
“The RBA minutes are absurd buffoonery,” he wrote online.
“It indicates that core inflation is already above 3%, wage growth is accelerating, fiscal policy is stimulative, global inflation is high, other central banks are rising, and then that the cash rate of 0.1% is appropriate.
“A big mistake is being made.”
Much of the lead-up to the April 5 cash rate decision focused on mounting inflationary pressures and whether they would be enough to force the RBA to admit it was no longer “prepared”. to be patient” when interest rates rise.
That line was indeed omitted from Governor Philip Lowe’s official post-meeting statement, which economists took as an indication that the board had decided to accelerate its plans.
This rhetoric was backed up by Tuesday’s minutes, in which the board noted that the conflict in Eastern Europe had contributed to skyrocketing consumer and commodity prices and offered conditions that “(advance) the likely timing of the first interest rate hike”.
However, Commonwealth Bank economist Stephen Wu said the RBA would likely wait for both the April 27 inflation data and the May 18 wage price index before making a call.
That would push back a rate hike until at least June 7.
“The (Tuesday) minutes were a last chance to leave the door ajar for a May hike, given that there will be no further communication from the RBA before the May board meeting” , Mr. Wu said.
“The minutes provided little new information on the RBA’s thinking and mostly reiterated the post-meeting statement that the RBA would assess over the coming months.
“Our central scenario remains that the RBA will start to normalize the cash rate after seeing both the data (salaries) and labor costs.”
Wu noted that the May meeting remained “live” even though a rise was unlikely, with a 0.25% rise expected in June and another 0.5% rise expected in July.
AMP Capital chief economist Shane Oliver said his base case was a rate hike in June, although he admitted a burst in inflation data next week could force the RBA to act.