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Preview: will RBA minutes signal further rate hikes?

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Internal RBA documents released last week discussed three paths to bring inflation back within the RBA's target band.


BG_rba_reserve_bank_australia_321651651.Source: Bloomberg


 Tony Sycamore | Market Analyst, Australia | Publication date: Monday 15 May 2023 

The minutes from the Reserve Bank's May meeting will be released on Tuesday, May 16 at 11:30am. The Bank surprised the market by increasing the cash rate by 25bp from 3.60% to 3.85%, ending its pause after one month.

The RBA's eleventh rate rise in twelve months defied consensus expectations of a pause which would permit the RBA time to achieve its stated goal of allowing more time to assess the impact of its rate hiking cycle.

The decision came despite a weaker-than-expected Q1 2023 inflation report released just a week earlier.

The RBA noted in the statement that accompanied the surprise rate hike that "inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range." Furthermore, it was noted that a further tightening of "monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."

The Board meeting minutes are expected to reiterate the sentiments outlined above. They will be closely scrutinised for any signal on the timing or metrics that would prompt the RBA to act on its tightening bias and what factors might see a pause in the rate hiking cycle.

As a side note, internal RBA documents released last week as part of "Freedom of Information" laws discussed three paths to bring inflation back within the RBA's target band.

The path the RBA appears to currently be on focuses on a "steady climb" that takes the cash rate to 4.8% by August, a level described as about 1% above the "nominal neutral rate."

This is a hawkish development and implies that the RBA's current cash rate of 3.85% is only now neutral and needs to be moved considerably higher in the months ahead to achieve the desired slowdown.

RBA cash rate chart


original-size.webpSource: RBA

  1. TradingView: the figures stated are as of May 15, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
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