RBA holds rates but patient wait is over – April 2022
RBA Governor Philip Lowe’s decision to hold the cash rate was expected, but markets are pricing in a cash rate of 1.75% by the year’s end. In his recent statement, Lowe dropped the term ‘prepared to be patient’ in a clear sign the RBA is ready for its first rate hike since 2010. With the economy well on its recovery from the COVID-19 recession and with increasing inflationary pressures, the RBA is switching their focus on new data on inflation and labour costs to provide ‘important additional evidence’ over coming future decisions.
However, the decision hangs on key sources of uncertainty such as the speed of resolution of supply-side issues, developments in the global energy markets, tension in Ukraine and the trajectory of overall labour costs. When previously the RBA had said it wanted to see wages growth extend materially above 3% before adjusting rates, now the bank was signalling it was looking at average hourly earnings – a broader metric that is rising quickly.
Financial markets reacted immediately to the decision - the AUD added more than half a US cent within minutes of Dr Lowe’s statement while the benchmark S&P/ASX 200 dropped 0.6% within half an hour.