RBA Leaves the Door Open for Another Potential Hike on Rates

RBA Leaves the Door Open for Another Potential Hike on Rates

Categories:
Tags:
ACY Securities logo picture.ACY Securities - Luca Santos
|
Apr 3, 2024
|
|

The recent release of the RBA Minutes offers insights into the central bank's stance on monetary policy. It appears that the RBA is satisfied with its current policy settings, noting that the data is aligning with their expectations, despite declines in growth and inflation. However, the RBA remains vigilant, seeing risks to both inflation and growth as balanced.

RBA Minutes

A screenshot of a bank board

Description automatically generated
Source: RBA Website 

Temporary factors such as decreasing fuel prices have contributed to the recent decline in monthly inflation rates, but the RBA anticipates inflationary pressures to gradually increase due to factors such as the cessation of electricity rebates. Additionally, persistent services inflation, particularly in rents, coupled with the gradual closure of the gap between domestic demand and supply, suggest a gradual alleviation of upward inflationary pressures.

Yet, the RBA expresses concerns that inflation may take longer to return to target than anticipated, echoing trends observed in other economies. As a result, the central bank keeps the door open for potential adjustments to the cash rate in the future, signalling a cautious approach to policy changes.

In terms of market implications, the RBA's plans to adjust its cash rate targeting methodology toward short-term money market rates indicate a shift away from pandemic-era unconventional monetary policies. Despite this transition, local banks anticipate minimal impact on their funding costs, suggesting limited repercussions for FX or rates markets.

The RBA's comparatively delayed initiation of rate cuts reflects the resilience of the Australian economy, buoyed by robust levels of migration and substantial business investment reminiscent of previous mining booms. Although household consumption remains subdued, the Financial Stability Review highlights households' ability to withstand higher rates, supported by a tight labour market and forthcoming boosts to household incomes from tax cuts.

In the currency markets, the AUD/USD pair faces downward pressure from various factors, including higher UST yields, a strengthening USD, and concerns over China's growth prospects dampening iron ore prices. Consequently, a long position in AUD/NZD may be favoured to reflect the RBA's delayed rate cutting cycle relative to other G10 central banks.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

|
|

Comments

Latest

Loading Comments

Please Sign In or Create Your FREE Account to Comment.

LiquidityFinder

LiquidityFinder was created to take the friction out of the process of sourcing Business to Business (B2B) liquidity; to become the central reference point for liquidity in OTC electronic markets, and the means to access them. Our mission is to provide streamlined modern solutions and share valuable insight and knowledge that benefit our users.

If you would like to contribute to our website or wish to contact us, please click here or you can email us directly at press@liquidityfinder.com.