This morning the Reserve Bank announced its decision to leave rates steady at 6.25%. It will consider the case for a rise in another meeting at the start of May.

  • Josh Williamson, Senior Strategist, Currency and Fixed Income Research, TD Securities: This morning the RBA announced that the cash rate target would remain at 6.25%. This was a surprise given the momentum in the domestic economy and the likelihood of stronger growth numbers in the future. However, we think that far from extinguishing the risk of further rate hikes, today’s decision merely postpones the decision until May or June. The domestic CPI is due out on April 24, well in time for the next RBA Board meeting. TD Securities believes that this will show underlying inflation pressure at the top of the RBA’s target band. We would argue that the Bank needs little new information to pull the rates trigger. Credit growth is strong, consumers are spending, wealth effects are positive and employment continues unabated.
  • Shane Oliver, Chief Economist, AMP Capital Investors: I think it was always going to be a close call. [Before today’s announcement] I was leaning towards thinking they’d keep them on hold. But we’re not out of the woods yet. The RBA has simply bought some time to consider the outlook. After all, the strong economic data might go cold. And there’s nothing to be harmed by waiting. There’s uncertainty about the US economy, so the RBA is waiting to see what happens there; the next RBA meeting in May is still one week ahead of the Budget and well ahead of the election and the March quarter CPI comes out on 24 April. It seems sensible to wait so I think they’ve done the right thing. And remember, in February the RBA was sounding much more relaxed about rates [so there’s already been a shift]. I give it a 60% chance that they’ll lift rates in May.
  • Su-Lin Ong, senior economist, RBC Capital Markets: We were a little surprised at the decision to hold rates, to be honest. There was a reasonably strong case for a rate rise given the data of late suggesting an acceleration in the economy’s momentum. Households look remarkably resilient and the three hikes of last year have barely had any restraining effect. Confidence is high and the economy is stretched. I think they could have lifted this morning. The case is still there. I still continue to think we will see a rate rise at the May meeting. I suspect [today’s announcement] was a very close decision.

  • Michael Knox, Chief Economist, ABN Amro Morgans: I would have been surprised if the RBA would have increased rates. Glenn Stevens, since he’s been in the position of RBA governor, has never raised rates until a month after a CPI announcement. May, therefore, was always going to be more likely than April for a rate rise. Whether it’s the right decision now [to hold rates steady] really depends. If the CPI data shows that core inflation is continuing to rise, then an increase in interest rates would be the right decision. But we just don’t know yet.
  • ANZ head of Australian economics, Tony Pearson, quoted in The SMH: The case for a rate hike remains compelling … With economic momentum picking up and core inflation sitting at the top of the RBA’s target band, the downside risk to growth from further monetary policy tightening has now diminished, while the risk of higher inflation from inaction has intensified … We expect the RBA to hike rates in May following the release of the March quarter CPI in late April. 
  • UBS economist Scott Haslem, quoted in The SMH: Given the surprising strength in the economic data — in the face of recently higher rates and together with a likely lift in wage pressures — suggests to us that a further move up remains a better than even chance in the near term … We continue to see a rate hike over coming months as a better than even chance, given the current strength in the activity data, combined with the low unemployment rate, a rising underlying trend in wages growth and a CPI likely to be sticky near the top of the target range. 

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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