Prior 4.35%Inflation remains above target and is proving persistentThe outlook remains highly uncertainThe process of returning inflation to target has been slow and bumpyHigh unit labour costs and inflation persistence suggest there are upside risks to pricesWages growth appears to have peaked but is still above the level that can be sustained given trend productivity growthMomentum in economic activity has been weak, as evidenced by slow growth in GDPThere also remains a high level of uncertainty about the overseas outlookInflation in underlying terms remains too highIt will be some time yet before inflation is sustainably in the target rangePolicy will need to be sufficiently restrictive until confidence returns that inflation is moving sustainably towards the target rangeRBA not ruling anything in or out on next policy stepsFull statement
The decision is as you would expect and so is the language for the most part. However, the RBA is putting some emphasis on the upside risks to inflation. And that is likely to guard against markets thinking that surely the next move will be a rate cut, particularly after the softer Q2 CPI report.
In June, the RBA noted that:
“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.”
Today, they changed that up to:
“Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”
The language mainly reinforces their stance in keeping the cash rate unchanged. But it also means that we aren’t likely to expect a move in September as well. That said, it’s not like markets were pricing in anything for next month anyway. The odds of the RBA leaving policy as it is in September are at ~88% currently.
This article was written by Justin Low at www.forexlive.com.
