RBA: No change due to caution – Commerzbank
The Reserve Bank of Australia left its cash rate unchanged at 4.1% this morning. In its statement, the RBA made it clear that its priority was to return inflation to the middle of its 2-3% target range and that there were still too many uncertainties about the economic outlook, both in Australia and globally, to cut rates again at this time, Commerzbank's FX analyst Volkmar Baur notes.
RBA to make a move at the next meeting in May
"On the domestic front, the RBA is particularly concerned that the labour market remains very tight and that persistently low unemployment and weak productivity could lead to wage growth that could reignite inflation. On the global front, the central bank is particularly concerned about a potential trade war, which could weaken the economy but still fuel inflation."
"More surprisingly, the central bank says that there is uncertainty about the time lag with which changes in monetary policy take effect. The statement itself is absolutely correct – but it can hardly refer to the interest rate hikes, because the majority of them took place more than two years ago. And the RBA only cut rates six weeks ago, and then only by 25 basis points. In the current global environment of high uncertainty, it will be probably be difficult to discern the impact of a single 25 basis point move at all, regardless of the time lag. It would have to cut rates by a larger amount."
"In the coming weeks, much will depend on the development of the labour market, which has shown some weakness recently. I continue to believe that both the economy and inflation will prove less robust than the RBA currently anticipates, and therefore expect a rate move at the next meeting in May."
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FXStreet Insights Team
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