- Cash rate on hold at a record low of 0.1%, as expected
- Board will remain patient in monitoring inflation
- Notes uncertainty from Russian invasion of Ukraine
By Conor Cooper
LiveSquawk News
1 March 2022 | 07:30 GMT
The Reserve Bank of Australia left the cash rate unchanged at a record low of 0.1% on Tuesday while highlighting the fresh uncertainty arising from the Russian invasion of Ukraine.
Economists had widely forecast the benchmark rate would remain on hold amid tepid wage growth and rising geopolitical risks and most do not expect the first hike will occur until the third quarter.
The statement also retained a pledge to be “patient as it monitors how the various factors affecting inflation in Australia evolve.” The language will help to cement the view that the RBA are not planning to join the tightening cycle in the near term.
“The Board will not increase the cash rate until actual inflation is sustainably within the 2-3% target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target range.”
Pay Rises
The board did note that wage growth had picked up but was still only around the relatively low rates prevailing before the pandemic. The wage price index rose to 2.3% in the fourth quarter.
Governor Lowe has indicated that wages would need to reach 3% to be consistent with inflation sustainably within the target range - a prerequisite to raising rates.
“Wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target,” the statement said.
Sean Langcake, head of macroeconomic forecasting at Oxford Economic said “the RBA are clearly cautious about how wage growth will unfold over 2022, noting there is uncertainty about how wage growth will behave at a historically low unemployment rate.”
The Australia Bureau of Statistics will release first quarter wage data on May 18.
War risk
The RBA are the first major central bank to meet in a formal capacity since the Russian invasion of Ukraine and their decision to include reference to the war in the statement could become a common theme at central banks in the weeks and months ahead.
Whether the fallout will be enough to alter the course of global monetary policy remains unclear but it does create a double a double headache for central bankers as the resulting rally in energy prices and tit-for-tat sanctions raises the prospect of higher inflation and slower economic growth.
The RBA said the war is a “a major new source of uncertainty” for the Australian economy while noting that it had further increased the price of many commodities.
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- Cash rate on hold at a record low of 0.1%, as expected
- Board will remain patient in monitoring inflation
- Notes uncertainty from Russian invasion of Ukraine
By Conor Cooper
LiveSquawk News
1 March 2022 | 07:30 GMT
The Reserve Bank of Australia left the cash rate unchanged at a record low of 0.1% on Tuesday while highlighting the fresh uncertainty arising from the Russian invasion of Ukraine.
Economists had widely forecast the benchmark rate would remain on hold amid tepid wage growth and rising geopolitical risks and most do not expect the first hike will occur until the third quarter.
The statement also retained a pledge to be “patient as it monitors how the various factors affecting inflation in Australia evolve.” The language will help to cement the view that the RBA are not planning to join the tightening cycle in the near term.
“The Board will not increase the cash rate until actual inflation is sustainably within the 2-3% target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target range.”
Pay Rises
The board did note that wage growth had picked up but was still only around the relatively low rates prevailing before the pandemic. The wage price index rose to 2.3% in the fourth quarter.
Governor Lowe has indicated that wages would need to reach 3% to be consistent with inflation sustainably within the target range - a prerequisite to raising rates.
“Wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target,” the statement said.
Sean Langcake, head of macroeconomic forecasting at Oxford Economic said “the RBA are clearly cautious about how wage growth will unfold over 2022, noting there is uncertainty about how wage growth will behave at a historically low unemployment rate.”
The Australia Bureau of Statistics will release first quarter wage data on May 18.
War risk
The RBA are the first major central bank to meet in a formal capacity since the Russian invasion of Ukraine and their decision to include reference to the war in the statement could become a common theme at central banks in the weeks and months ahead.
Whether the fallout will be enough to alter the course of global monetary policy remains unclear but it does create a double a double headache for central bankers as the resulting rally in energy prices and tit-for-tat sanctions raises the prospect of higher inflation and slower economic growth.
The RBA said the war is a “a major new source of uncertainty” for the Australian economy while noting that it had further increased the price of many commodities.