RBA Tracker

Dovish tilt

The RBA Board left the cash rate at 4.35% today.

The Board’s statement and Governor Bullock’s press conference tilted dovish earlier than we thought.

Significantly, concerns about upside risks to inflation were toned down and the “not ruling anything in or out” phrase is gone (though our view is that this was already redundant and the Board kept it largely for show, knowing full well that the risks of another rate hike were slim at best).

Our view was that new information over the past month was unlikely to have really changed the Board’s thinking and that the February Board meeting loomed as a much larger opportunity to change tune if warranted by incoming data, including what we envisage to be a lower-than-expected Q3 underlying inflation print.

It turns out that the Board interpreted the data a bit differently, with key phrases including:

• recent data on economic activity have been mixed, but on balance softer than expected in November.

• September quarter data suggest that both incomes and consumption had recovered a little slower than forecast, but more recent information has suggested a pick-up in consumption in October and November.

• Wage pressures have eased more than expected in the November SMP.

• Some of the upside risks to inflation appear to have eased.

What prompted this shift?

It wasn’t labour market data because the Board’s statement noted that “some cyclical labour market indicators…have recently declined.”

It appears to have been Q3 wages and GDP data.

In the press conference, the Governor solely highlighted the WPI and national accounts as data received since the previous Board meeting that gave the Board a bit more confidence that inflation is sustainably heading towards 2.5%.