ING have titled their note “RBA drifting towards a hike”. In my post on the minutes earlier today, and then again in the wrap, I said there is nothing in the minutes that convey a sense of urgency from the Reserve Bank of Australia. So, yeah, what ING says is spot on, ‘drifting’.
I note a lot of takes on the minutes that focus on the Bank saying:
developments have brought forward the likely timing of the first increase in interest rates
Well, yes. But that is very old news. This, for example, from the April statement analysis:
There is a jump in the aussie as the RBA makes some subtle changes to the forward guidance. Of note, they have dropped the notice on being “patient”
Anyway, back to the ‘drifting’ take.
ING point out a likely timeline for the first hike from the RBA:
a likely timeline of events might look something like this:
27 April – 1Q22 CPI data comes out, and it remains at least 3.7%, and probably pushes above – maybe exceeding 4%YoY;
3 May – RBA meeting – no change to policy cash rates or exchange settlement rate, but published forecasts show growth staying resilient and higher for longer inflation;
18 May – Wage price index released. It is up from the 2.3% 4Q21 figure, but not quite at the previous 3% threshold – though close enough not to matter
7 June – RBA moves Cash rate target from 10bp to 25bp. May also move the Exchange settlement rate from 0% to 15bp or even 20bp so that cash rates trade slightly closer to their target in an environment of ample exchange settlement balances.
Which sounds right on the timing. June is the consensus expectation now. I should point out there is an Australian election due on May 21, which has most analysts thinking a May hike is thus not likely.
Its been a loooong time since the last RBA rate hike: