The Reserve Bank says inflation and wages growth is running hot enough to bring forward interest rate hikes, but it has dropped another clue why this will not likely be until after the May 21 federal election.
The nation’s central bank left some economists scratching their heads on Tuesday after minutes from its latest meeting suggested its finger was on the interest rate trigger, but not likely to twitch at the meeting in two weeks’ time.
Minutes from the April 5 meeting showed RBA members accepted inflation and wages growth were now, or would soon be, at a point that would necessitate the interest rate being lifted for the first time in 12 years and away from the current emergency setting of 0.1 per cent.
But IFM chief economist Alex Joiner noted the RBA’s subsequent commitment to monitor the economy “over the coming months” signalled there would be no May 3 rate hike, even if next week’s quarterly inflation figures expectedly shoot past core targets.
“‘Over coming months’ (is) a euphemism for after the election,” Joiner wrote on Twitter.
“The CPI print next week would ordinarily prompt an immediate move.
“If the RBA’s unwritten rule is to not move rates in an election period, even though the data will justify it, and especially as it is a move to lift rates incrementally from record low, then maybe the bank shouldn’t meet in election months?”
There has not been an election campaign rate hike in Australia since November 2007, something which preceded the ousting of the then Liberal PM John Howard.
Stephen Koukoulas, a former economics adviser to Labor Prime Minister Julia Gillard, said the RBA had erred in not moving sooner this time around.
“RBA Minutes are absurd buffoonery,” he wrote online.
“It says underlying inflation is already above 3 per cent, wages growth is accelerating, fiscal policy is stimulatory, global inflation is high, other central banks are hiking and then says the 0.1 per cent cash rate is appropriate.
“A big error is being made.”
Much of the lead-up to the April 5 cash rate decision was focused on mounting inflationary pressures, and whether they would be enough to force the RBA to admit it was no longer “prepared to be patient” on rate hikes.
xjmtzywThat line was indeed left out of governor Philip Lowe’s official post-meeting statement, something which economists took as an indication the board had decided to accelerate its plans.
This rhetoric was backed up by Tuesday’s minutes, in which the board noted conflict in Eastern Europe had helped send consumer and commodity prices soaring and deliver conditions that would “(bring) forward the likely timing of the first increase in interest rates”.
However, Commonwealth Bank economist Stephen Wu said the RBA would likely wait until it has both the April 27 inflation data and the May 18 wage price index in front of it before making a call.
This would push out a rate hike until at least June 7.
“(Tuesday’s) minutes were a final chance to leave the door ajar for a hike in May, given there will not be any new communication from the RBA until their May Board meeting,” Mr Wu said.
“The Minutes provided little new insight on the RBA’s thinking and mostly reiterated the post‑meeting statement that the RBA would assess over coming months.
“Our central scenario remains that the RBA will begin normalising the cash rate after seeing both the (wage) and labour costs data.”
Wu noted the May meeting remained “live” even if a hike was unlikely, with a hike to 0.25 per cent expected in June and another rise to 0.5 per cent tipped in July.
AMP Capital chief economist Shane Oliver said his base case was for a June rate hike, although he admitted a blowout in inflation data next week could force the RBA to act.
