MNI RBA Review – May 2024: Rate Hike Discussed, RBA “Vigilant”

EXECUTIVE SUMMARY:

• The RBA left rates at 4.35% which was widely expected and maintained its reasonably neutral bias with the optionality that it isn’t “ruling anything in or out”. In that respect there was little change but the tone of the statement was a lot more cautious re the inflation outlook saying that not only is inflation “falling more gradually than expected”, especially services, but the Board “will remain vigilant to upside risks”.
• Governor Bullock said that both a rate hike and hold were discussed at the May meeting and the Board hopes that it won’t have to hike but it will if it has to. Currently the Board sees risks as “reasonably balanced” but needs to monitor upside inflation risks, especially as the costs of an overshoot exceed those of an undershoot.
• While the CPI is not expected to be near the top of the band at the end of this year, the RBA continues to project both headline and core at 2.8% in Q4 2025 and 2.6% in Q2 2026, so no change in when inflation enters the band and reaches the mid-point but the “process” is “unlikely to be smooth”. With inflation forecast to be 3.8% at year end though, it looks like there will be a prolonged hold.

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RBA Review - May 2024.pdf