The release of the meeting’s minutes on Tuesday revealed the board considered raising the cash rate but agreed steady policy was a better course to take.

The meeting on 6-7 May noted official inflation and jobs data had been stronger than expected since the board’s previous meeting in March when a rate rise was not considered.

This includes inflation coming in higher than expected in March and labour market data showing employment remained robust with an increase in the participation rate.

Annual Consumer Price Index (CPI) inflation was 3.6% for the March quarter, jumping 1% for the period compared to a 0.6% rise for the previous quarter.

The RBA minutes reiterated that returning inflation to its 2-3% target remains the board’s highest priority.

“A higher cash rate might… be required, even with ongoing weakness in aggregate demand, if other factors slowed the pace of disinflation,” the minutes noted.

Disinflation is economic speak for the slowdown in the rate of inflation.

The minutes concluded that given the considerable uncertainty about the outlook for both inflation and the labour market, “it was difficult to either rule in or rule out future changes to the cash rate”.

Hawkish undertone returns

The RBA minutes echoed a return to a more hawkish stance than the previous meeting although it could be interpreted as a touch of bluster to strike fear into the punters.

Despite the tough talk, the minutes revealed the board is prepared to wait until the end of 2026 for inflation to return to target.

As it stands, the board is sticking with its forecast that inflation will reach its target range of 2-3% in the second half of 2025, hitting the mid-point of the range in 2026.

But it said this was predicated on a “higher technical assumption” for the cash rate than three months earlier.

In other words, a rise could be on the cards if inflation drops too slowly and the jobs market remains too strong.

What about the Federal Budget?

The latest minutes noted RBA forecasts did not incorporate any measures that were still to be announced in the federal and state budgets for 2024-25.

The Federal Budget was released a week after the board meeting, promising cost-of-living relief while, at the same time, lowering inflation.

Federal Treasurer Jim Chalmers was even so bold as to predict inflation would be within the RBA’s target zone by the end of 2024, a whole year ahead of the RBA’s forecast.

This was largely based on the budget’s centrepiece $300 energy rebate for all Australian households and $325 for small businesses.

Dr Chalmers said this would bring down inflation because it directly cuts energy bills, a key measure of CPI inflation.

But many economists are sceptical, pointing out that more money in people’s pockets could translate to more inflation-linked spending, particularly with the planned stage three tax cuts due to take effect on 1 July.

No doubt, the next RBA board meeting on 17-18 June will be carefully considering the fallout.

Big banks respond

Australia’s big banks are holding firm with their forecasts of a drop in the cash rate in November 2024.

The Commonwealth Bank of Australia said the risk to that now comes from how consumers respond to the fiscal easing from 1 July - bank speak for tax cuts.

Meanwhile, National Australia Bank says its forecasts for subdued demand in the economy may see the labour market loosen more than the RBA is expecting.

NAB is predicting a 4.5% unemployment rate at the end of 2024 while the Reserve Bank’s forecast was 4.2%.

It said even if its forecast was wrong, it expected the RBA to keep the cash rate on hold for longer.

ANZ said despite the "hawkish tinge" to the minutes, it noted the board might be prepared to tolerate above-target inflation for longer than expected with its seemingly relaxed marker of 2026.


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