RBA seen distant from acting on its tightening bias; uncertainty over household spending likely to weigh: ANZ Research

The Reserve Bank of Australia (RBA) is seen to be a long way from acting on its tightening bias. The uncertainty about the outlook for household spending will constrain action on the part of the Bank until wages accelerate meaningfully and the Bank gets more comfortable with how the shift from interest-only loans to principal and interest loans is impacting, according to the latest report from AMZ Research.

For the first time, the RBA Board Minutes explicitly acknowledge that “members agreed that it was more likely that the next move in the cash rate would be up, rather than down.” Of course, this is not exactly new. The RBA Governor has been saying as much for some time. But the fact the Board now explicitly acknowledges this is an interesting development.

This tightening bias does come with a number of caveats, of course. In particular, given the expectation of slow progress on the unemployment and inflation objectives, “there was not a strong case for a near-term adjustment in monetary policy.”  This language, though, indicates that the Board seems to think there is a case for a rate hike - just not a strong one at present.

 Otherwise, the commentary in the Minutes was what we might expect given the April statement. The economic outlook is positive and the outlook is for higher wage growth and inflation, though "progress in lowering unemployment and having inflation return to the midpoint of the target was expected to be only gradual", the report added.

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