Morgan Stanley
  • Research
  • March 9, 2022

The RBA remains patient

The RBA’s broad message remained unchanged at its March meeting - amid significant uncertainty it seems happy to remain patient and wait for the data to evolve.

The RBA remains patient

The RBA left the cash rate target on hold at 0.1% at its March meeting, as expected, and its messaging was largely unchanged. The RBA remains optimistic on the economic outlook, expecting a strong bounce back from the Omicron variant and further tightening in the labour market. Despite this, uncertainties around the sustainability of the inflation pulse were still emphasised and the RBA continues to note that it is prepared to be patient around any potential cash rate changes.

Inflation boost from energy was acknowledged

The main change in this month’s RBA statement was an acknowledgement that geopolitical developments mean global energy markets are a "major source of uncertainty", alongside broader supply-side issues that were previously flagged. The RBA noted that the spike in petrol prices will drive headline inflation higher in the near-term, even above core inflation which it expects to breach the top end of the target band (3%) in coming quarters.

Labour costs still key:

Despite the acknowledgement of upside risks to near-term headline inflation, the statement continued to stress the importance of domestic price pressures and the labour market for meeting the RBA's sustainable inflation criteria. The RBA moved away from talking just about wages and instead referenced broader "labour costs" - widening its scope of measures to presumably include the "including bonuses" measure of wages that was relatively strong last week, and the national accounts wages measure in the GDP release tomorrow.

Patient path to rate hikes:

Overall, the statement suggests that while the RBA remains on the path to rate hikes, it does not feel the need to accelerate its patient profile. At his Parliamentary Testimony last month Governor Philip Lowe noted that "just having one more CPI is not enough for that evidence to emerge" and that "another couple of CPIs would be good to see". Morgan Stanley strategists expect in the near-term, the RBA’s focus will be on the framework for balance sheet reduction which is expected to be announced at the May meeting.

Exhibit 1: Market pricing for lift-off has moved back to July, but Morgan Stanley strategists think RBA messaging suggests this is still too early

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