It doesn't look like the RBA is planning to join

the global rate-cuts club soon

Pendal

June 2024

AS expected, there was no rate change from the Reserve Bank today.

We believe changes are more likely to happen at RBA meetings where updated forecasts are released in the form of their Statement on Monetary Policy.

Those meetings are held in February, May, August and November.

What did we get out of today's statement?

There are a lot of known unknowns at the RBA at the moment:

• To what extent are lags from past policy tightening still feeding through to the economy?
• How will consumption growth look after tax cuts, the wealth effect from rising house prices and lower inflation?
• What pricing responses will we see from businesses in light of a tight labour market and slowing demand?
• And what of the external environment? Geopolitical risks remain elevated. The economic outlook for China and the US has improved. Commodity prices have risen.

The central bank rate-cut club has increased its membership in recent months.

The Bank of Canada and the European Central Bank both joined the club this month, easing by 0.25% each.

Existing club members include the Swiss National Bank and Sweden's Riksbank.

Anyone looking for Australia to join the club soon would be disappointed, however.

The final paragraph from today's RBA note said: "Inflation is easing but has been doing so more slowly than previously expected and it remains high.

"The Board expects that it will be some time yet before inflation is sustainably in the target range."

So the RBA is not ruling anything in or out. Rate hikes? We see this as highly unlikely.

What the RBA is looking for

The RBA needs to see inflation moving sustainably towards its target before easing policy.

Instead, right now it sees excess demand in the economy and a tight labour market.

There is now a higher risk of an RBA policy mistake caused by holding policy too tight, for too long.

The RBA is now reactive to past data. Gone are the days of relying on forecasts resulting in policy changes.

That is a scenario they are more comfortable with, however.

Easing policy too soon - without inflation properly contained - is the death knell for any central banker.

Author: Steve Campbell head of cash strategies.

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