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The minutes of the March monetary policy meeting have revealed that the Reserve Bank of Australia (RBA) had not considered increasing or decreasing the official cash rate on the back of broadly expected economic data.
The RBA chose to continue to hold the official cash rate at 4.35 per cent due to members observing that “financial conditions in Australia had been little changed overall since the previous meeting”.
According to the minutes, the board agreed that leaving the cash rate at 4.35 per cent was the “best way to achieve” the RBA’s goal of inflation returning to target and the labour market to full employment.
“In light of these assessments, members agreed that it was appropriate to leave the cash rate target unchanged at this meeting. They agreed that the data received since the previous meeting had been broadly as expected and did not materially alter the outlook for output growth and inflation,” the board stated.
“In particular, members noted that the data had continued to indicate that inflation was high but gradually returning to target, and that the labour market was moving towards conditions consistent with full employment.”
No mention of rate hikes or cuts
Unlike the board meeting minutes from previous months, the March minutes did not include the RBA considering whether or not they would move (hike or cut) interest rates.
However, the minutes echoed RBA governor Michele Bullock comments during the press conference following the monetary policy meeting, in which she stated that the RBA cannot “rule anything in or out” in terms of further rate movements.
The RBA stated that given its assessment of the current economic landscape, board members “agreed that it was appropriate to characterise the policy outlook as one in which it was difficult to either rule in or out future changes in the cash rate target”.
Instead, the minutes revealed that the RBA “debated the balance of risks around the outlook” (which is in line with Bullock’s previous comments).
“On the upside, there remained a risk that inflation would take longer to return to target than currently expected, resulting in an upward shift in inflation expectations,” the RBA stated.
“On the other hand, members noted the risk that weakness in consumption could continue for longer than expected.
“In particular, the recovery in real household disposable income growth may not lift consumption growth if households do not respond as expected, perhaps because of a weakening in the labour market.
“On balance, members considered that the relative probability of these two sets of risks had become a little more even, as the incoming data had not indicated a materialisation of upside risks to inflation and as growth in output had slowed as expected.”
Neutral or not?
In light of the minutes and post-meeting commentary from the board and Bullock herself, bank economists now consider the RBA to have adopted a neutral or near-neutral stance on monetary policy.
It should be noted that this is not something that has been explicitly confirmed by the RBA or Bullock.
ANZ senior economists Catherine Birch and Blair Chapman said that the RBA’s March minutes have confirmed that “while the board has moved closer to a neutral stance, it retains the mildest of hawkish biases”.
“We still expect the RBA will be on hold until November, with the possibility of earlier cuts reduced by the very strong February labour market data, which was released after the RBA’s March meeting,” they said.
“Ultimately, the assessment that ‘the relative probability of these two sets of risks had become a little more even’ suggests to us the balance is not yet completely neutral. As does the members’ agreement to ‘reiterate their resolve to do what is necessary to return inflation to target’.”
On the other hand, Commonwealth Bank of Australia (CBA) head of Australian economics Gareth Aird said that this was the “most dovish piece of communication” from the RBA since it began hiking interest rates almost two years ago.
“The board shifted to a neutral policy bias in March. And the minutes today [2 April 2024] indicate that the Board did not consider the case to raise the cash rate at the March meeting,” Aird stated.
“Since the RBA commenced its tightening cycle in May 2022 the minutes have canvassed what the board considered at each policy meeting.
“More specifically, at each meeting that the board decided to leave the policy rate unchanged the case to raise the cash rate was also considered. But in the minutes today it is apparent that the board did not discuss the case to tighten policy in March.”
Aird concluded that CBA remains comfortable with its scenario of monetary policy easing to begin at the September meeting.
Westpac chief economist Luci Ellis commented: "While the board endorsed the language of not ruling anything in or out, it seems that policy actions other than keeping rates unchanged were not on the table at this meeting.
"The current level of the cash rate is assessed as being just right, at least for the time being.
"We expect the RBA to reach the required level of assurance about the path of inflation later in the year, after the full suite of data for the first half of 2024 are released. We continue to expect the first rate cut to occur at the late-September board meeting," Ellis said.
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