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In leaving the cash rate on hold at 4.35 per cent during the June monetary policy meeting, members of the Reserve Bank of Australia (RBA) agreed that the collective data received since May had “not been sufficient to change their assessment that inflation would return to target by 2026, despite some elevated upside risk around the forecast”.
However, it should be noted that the monthly Consumer Price Index (CPI) indicator for June – which rose 4 per cent – was released after the June monetary policy meeting.
The release of the June CPI print raised eyebrows and rattled expectations of a continued hold in the cash rate in the upcoming August meeting, suggesting that the current cash rate settings are not sufficient to bring inflation back to the target range of 2–3 per cent.
The minutes of the June meeting revealed that RBA members affirmed their assessment that it was still possible to “achieve the board’s strategy returning inflation to target in a reasonable time frame without moving away significantly from full employment, even though this ‘narrow path’ was becoming narrower”.
“In addition, members judged that there had not been enough evidence that the outlook for aggregate demand had strengthened, noting uncertainty around the data for consumption and clear evidence that many households were experiencing financial stress,” the minutes said.
However, the sentiment of remaining vigilant to upside risks to inflation was prevalent in the board’s deliberations, indicating that the RBA remains data dependent and possibly adopting a “wait and see” approach in regard to further movements in the cash rate.
Reacting to the minutes, ANZ head of Australian economics Adam Boyton said there was “no smoking gun” in the minutes to suggest that a rate hike in August is the base case for the central bank.
Boyton said that it’s still the expectation of ANZ’s economics team that the cash rate will remain on hold at 4.35 per cent until February 2025, where a rate cut of 25 bps has been predicted; however, he acknowledged “there is some risk that the next move is a hike”.
Senior economist at the Commonwealth Bank of Australia (CBA), Belinda Allen, said the increased vigilance was “backed up by a fuller discussion on the case to hike the cash rate at the June meeting”.
“After no discussion to hike the cash rate in March, the discussion returned in May after stronger 1Q24 CPI data and stronger non-consumer related data,” Allen said.
“The case to hike in June though was broader.”
With the RBA set to meet on 5–6 August, a keen eye has been placed on the upcoming June quarter inflation dataset.
It is speculated that should the June quarter print exceed the RBA’s forecast, the case for a rate hike will become stronger, if not a certainty.
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