RBA Removes “Patient” From Statement; Signals Hike Over Coming Months

By Sophia Rodrigues

(Sydney, April 5, 2022)—The Reserve Bank of Australia removed its message of patience in the landmark cash rate statement on Tuesday where it flagged the possibility of rate hike over the coming months, for the first time since mid-2011.

CB-Intel had written on March 17, after the release of the labor force survey, that it was time for the RBA to retire the word “patient” because inflation is rising faster than expected and the labor market is also improving more quickly.

In the statement Tuesday, the RBA said, “over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs.”

“The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.”

The mention of inflation and labor costs data suggests the first quarter inflation data in late April won’t be enough for the RBA to press the rate hike trigger, and this rules out an increase at the May meeting.

To raise the cash rate, the RBA will wait for national accounts data on June 1 which will contain information on labor costs in the economy.

The board meeting on June 7 is thus the first live meeting for a rate hike, and the RBA is very likely to deliver an increase at that meeting.

The language in Tuesday’s statement was very positive, with the RBA noting the economy remains resilient and spending is picking up following the Omicron setback.

“The strength of the Australian economy is evident in the labour market, with the unemployment rate falling further to 4 per cent in February. Underemployment is also at its lowest level in many years,” the RBA said.

The most important comment was on wages growth, where the RBA said there were some areas where larger wage increases are occurring.

“Given the tightness of the labour market, a further pick-up in aggregate wages growth and broader measures of labour costs is in prospect,” the RBA said.

Commentary on inflation was also hawkish. The RBA said inflation had increased sharply in many parts of the world, and in response, expectations of future policy interest rates had increased.

Domestic inflation has increased, the RBA said. It reminded that an updated set of forecasts will be published in May.

--Contact: Sophia@centralbankintel.com