Exactly what the RBA wants before hiking interest rates
Posted On April 5, 2022
Famously conservative, the bank had for many months said it was “prepared to be patient” before lifting interest rates, deliberately adding no fuel to media and market speculation.
But in today’s monetary statement, RBA governor Philip Lowe outlined exactly what the central bank is looking for before hiking the cash rate – and it could be upon us within weeks.
“The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates,” Mr Lowe said.
“Inflation has picked up and a further increase is expected, but growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target.
“Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs.
“The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.”
Translation: the RBA will wait until at least late April before charting a course, when the latest Consumer Price Index data is handed down.
The Consumer Price Index – or CPI – generally tracks inflation via a “standard basket” of goods and services.
This is the first time in recent memory that inflation had entered the RBA’s own criteria of “sustainably between two and three per cent”.
So what are they waiting for? The next CPI data is due to be handed down by the Australian Bureau of Statistics on 27 April 2022 at 11.30am.
We don’t know what the exact numbers will be, but several economists (and indeed the Federal Budget) have forecast inflation to continue lifting.
Will that be enough for the RBA to hike rates in its May meeting?
It remains to be seen – as the language of “sustainably” could require at least three sets of data before the central bank moves its hand.
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