The RBA May meeting left the cash rate on hold: What’ll make the bank raise rates further

The Reserve Bank of Australia left its cash rate unchanged at the meeting yesterday, as was widely, nearly unanimously, expected.


In summary from Westpac’s response, bolding is mine … on what’ll prompt a further rate rise:

  • RBA Board … strengthened its rhetoric around upside inflation risks.
  • The statement highlighted that inflation is declining, but more slowly than expected. Services inflation is moderating only gradually, driven by a labour market that the RBA now assesses to be tighter than previously thought.
  • Monetary policy is assessed as restrictive, and the current level of the cash rate is seen as supporting continued progress on getting inflation back into the 2–3% target.
  • In the media conference, the Governor confirmed that both a rate hike and holding rates unchanged were discussed at the meeting, with the Board ultimately deciding to hold.
  • The forward-looking parts of the statement continue to emphasise that the Board is not ruling anything in or out in terms of future policy.
  • While there have been upside surprises in recent inflation and labour market data, these occurred in a context of weak domestic demand and a trajectory for inflation that is still clearly downwards.
  • Overall, we see the policy decision as poised. As the Governor noted in the media conference, it is hoped that they will not need to raise rates further, but they will act if needed. Likewise, our house view is that the most likely outcome is unchanged rates for a period, but further upside surprises will change the calculus.


This article was written by Eamonn Sheridan at Source