RBA’s revamped board announces its first call

After delivering its first rate cut in over four years in February, the new-look Reserve Bank of Australia announced a hold on Tuesday, keeping rates at 4.10 per cent in what was an expected move.

In its statement on Tuesday, the RBA said: "At its meeting today, the board decided to leave the cash rate target unchanged at 4.10 per cent and the interest rate paid on Exchange Settlement balances at 4 per cent.

"The board’s assessment is that monetary policy remains restrictive. The continued decline in underlying inflation is welcome, but there are nevertheless risks on both sides and the board is cautious about the outlook," the bank said, adding that the board would rely upon the data and the evolving assessment of risks to guide its decisions.

"In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The board is resolute in its determination to sustainably return inflation to target and will do what is necessary to achieve that outcome."

Ahead of Tuesday, economists widely expected the RBA to hold rates, particularly after the PM announced a 3 May election last week.

Scott Solomon, co-portfolio manager of T. Rowe Price’s Dynamic Global Bond Strategy, said on Monday that consecutive rate cuts were never on the table.

“No one expects the RBA to cut at consecutive meetings as the most recent messaging effectively took the scenario off the table,” he said.

While recent data was weaker, Solomon cautioned that employment numbers could be volatile, adding also that with the upcoming elections, “we feel it wise to remain out of the spotlight”.

Like Solomon, Westpac’s Luci Ellis said in her market note this week: “back-to-back cuts in February and April were never on the table”.

“The RBA was too hawkish in its rhetoric last month for that, and the board made clear that last month’s cut did not foreshadow more. Cutting again at the April meeting would therefore be damaging to its credibility,” the chief economist said.

HSBC’s Paul Bloxham agreed, adding that the RBA’s decision to cut in February and its subsequent guidance had taken it largely out of the economic conversation as the election unfolded.

He noted that while the unemployment rate and trimmed mean inflation measures have printed in line with the RBA’s forecasts, HSBC expected “the RBA to be firmly on hold on 1 April”.

Even the most optimistic economists, including those at the Commonwealth Bank, were aligned in their prediction of an unchanged cash rate.

“We do, however, think the flow of recent data will see the RBA deliver a more dovish message, particularly amid heightened geopolitical and policy uncertainty,” they added in a market note this week.

Speaking to ifa sister brand InvestorDaily on Monday, Oliver said while he did see merit for a cut based on recent inflation data and the broader economic situation, he believed the RBA would remain cautious and wait until May before moving again.

“I think there is reason to cut tomorrow – inflation is falling, the labour market may not be as tight as the RBA thinks it is, and Trump’s trade war threatens Australian economic growth,” he said.

“But I think the RBA will remain more cautious and wait till May before moving again.

“The election is an added reason for the RBA not to do anything, as – though it won’t openly say so – it prefers to keep a low profile in election campaigns unless it really feels the need to move.”