The RBA left the cash rate on hold at 4.35% at today's meeting in a unanimous decision (9-0) by the Monetary Policy Board. This pauses the RBA's tightening cycle after interest rate hikes at its first three meetings of the year. Despite the US-Iran agreement to reopen the Strait of Hormuz and signs that tighter financial conditions are slowing the Australian economy, Governor Bullock said the Board is not ruling out raising the cash rate further. Markets are split on whether the RBA will hike again in this cycle.
Today's decision was widely expected after the Board hinted following its May meeting that a pause was likely, with three straight rate hikes leaving monetary policy 'well placed' to respond to developments. That theme carried over into the decision statement by noting the Board would now watch how the domestic economy evolves and observe how the oil market responds with the Strait of Hormuz set to reopen.
Uncertainty over the outlook remains 'heightened' and the Board in its discussions concluded that there were still scenarios that posed downside risks to growth and upside risks to inflation. In that context, Governor Bullock's main message at the post-meeting press conference was that the Board was leaving all options on the table regarding policy.
The earlier rate hikes are judged to have tightened financial conditions, weighed on spending and slowed the housing market. However, there was not too much concern expressed over soft GDP growth in the March quarter or in the uptick in the unemployment rate to 4.5% in April. In fact, Governor Bullock went as far as saying these are required outcomes for it to counter risks of second-round effects of energy-driven inflation.
Accordingly, the Board has left its implicit hiking bias in place 'to do what it considers necessary' to meet its policy mandates for 2-3% inflation and full employment. To avoid any communication missteps, the Board went to the additional measure today of inserting the line that this potentially includes 'increasing the cash rate target further if required'. The next RBA monetary policy meeting is on 10-11 August.
