Australia: RBA stands pat again in March; adopts more dovish language
At its monetary policy meeting on 19 March, the Reserve Bank of Australia (RBA) left the official cash rate (OCR) unchanged at 4.35% for the third consecutive meeting, as markets had expected. It also struck a more neutral tone.
The Bank decided to leave the monetary policy stance unchanged as it assessed that, even though inflation was moderating, it remained elevated. Inflation in January was unchanged at December’s 3.4%, and the RBA considered the recent evolution of inflation to be consistent with moderating price pressures amid stubborn excess demand in the economy. Looking ahead, the Bank expects inflation to return to its 2.0–3.0% target range no sooner than 2025 and hit the target’s midpoint in 2026.
The Bank tweaked its communication, replacing the phrase “a further increase in interest rates cannot be ruled out” with “the Board is not ruling anything in or out”, opening the door to future monetary policy decisions in both directions. That said, it did reiterate that it “remains resolute in its determination to return inflation to target”. The path of future monetary policy will depend on data and the evolving outlooks for inflation, domestic demand, the labor market and the global economy. Our panelists expect the RBA to begin easing the OCR later this year as inflation continues to moderate.
The next monetary policy meeting is scheduled for 6–7 May.
Commenting on the outlook, United Overseas Bank’s Lee Sue Ann stated:
“We continue to expect the RBA to remain on hold in Q2 2024, after which we think the Board will be sufficiently confident that the restrictive monetary policy settings can be reduced at an incremental and measured pace.”
Similarly, ING’s Robert Carnell commented:
“Although the near-term inflation path still presents a slight risk to the rate outlook, we think that inflation will have fallen sufficiently far by the third quarter of this year to enable the RBA to cut the cash rate target by 25 basis points. We also think that by the year-end, slowing growth and further inflation declines will be enough to deliver a second rate cut.”