No cash rate move likely till Q3. Dr Brendan Rynne, KPMG Chief Economist, responds to RBA announcement

The RBA Board has kept the cash rate steady at 0.1 percent. KPMG anticipates adjusting the cash rate upwards is unlikely to be in play until Q3, probably the August 2022 meeting at the earliest.

Governor Lowe has also confirmed that the bond purchasing program, driving QE, ceased on 10 February 2020; effectively de-escalating the monetary stimulus that has been in place in Australia since the end of 2020 (and which was originally planned to be in play for only 6 months)

The RBA continues to note it wants to see sustained increases in inflation and wages growth before it looks to raise the cash rate; which in effect means the board will want to see at least a couple of quarters where inflation is sitting at the top end or above the upper end of its target band (of 2 percent to 3 percent).

The December quarter saw seasonally adjusted headline annual CPI touching 3.7 percent, with underlying inflation being somewhat lower at 2.6 percent. However, the RBA is likely to see through the current spike in oil prices being caused by the Russian conflict with Ukraine in interpreting the sustainability of inflation.

What is likely to be more important in any RBA considerations is wage movements. Unemployment has remained very low, even with the Omicron outbreak; and is expected to be driven down further as aggregate demand expands. While continuing low unemployment is anticipated going forward, the latest data point shows annual wages growth for the final quarter of 2021 was still weak at 2.4 percent.

While the actual inflation and, in particular, wage growth results are trending upwards they are still at levels that suggest it will be sometime before the RBA will consider they are achieving “sustainable increases” and therefore upwards movement in the cash rate is justified.

Post-pandemic global recovery is likely to be disrupted given the escalating conflict in Europe and all the associated sanctions that will have a negative consequence on world trade. This is likely to give other Central Banks cause to reconsider aggressive monetary policy tightening that was seemingly planned to take hold from now onwards; this in turn will provide space for the RBA to hold off commencing its tightening cycle too.

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