The RBA today lifted the cash rate another quarter point to 4.0%, the fourth hike since last October, but a resumption of the tightening cycle that unexpectedly stalled in February. We had forecast another “unchanged” outcome today on the basis that, arguably, there is more uncertainty over the outlook now than there was four weeks ago, particularly offshore. It seems, though, that Board members this time are willing to take a leap of faith on Australia’s economy being sufficiently resilient to withstand another small hop towards a “normal” policy stance, and that the “tail risks” overseas are not immediately threatening.
This process of monetary policy normalisation has much further to run; we continue to forecast a cash rate of 5% by the end of the year. Indeed, there is little doubt that Australia’s cash rate is too low, particularly given that our economic caboose increasingly is hitched to Asia’s train. This was, however, equally obvious four weeks ago.
Strangely, there is no explicit mention in today’s statement of the Aussie consumer, despite uncertainty about how the punters were coping with the earlier rate hikes being put forward, for example, in Governor Stevens’ testimony to Parliament on February 19, as a key reason for the RBA being sidelined last month. The fact that the Aussie banks “super-sized” the RBA’s moves means the burden on households was even larger. The banks have done some of the heavy lifting for the RBA.
J.P. Morgan Research Australian Economic Update
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