RBA Says Ukraine War Major New Uncertainty; Watching Energy Markets

By Sophia Rodrigues

(Sydney, March 1, 2022)—The Reserve Bank of Australia lefts its monetary policy settings unchanged and reiterated its message of patience as it monitors inflation developments.

In the statement Tuesday, the RBA cited the war in Ukraine as a major new source of uncertainty but omitted the reference to pandemic as a main source of uncertainty.

The comments were mainly focused on inflation with developments in global energy markets adding to the already existing uncertainty from disruptions to supply chains.

“How long it takes to resolve the disruptions to supply chains is an important source of uncertainty regarding the inflation outlook, as are developments in global energy markets,” the RBA said.

The RBA noted that inflation in parts of the world has increased sharply due to large increases in energy prices and disruption to supply chains at a time of strong demand, and that prices of many commodities have increased further due to the Ukraine war.

Importantly, the RBA pointed to rise in bond yields over the past month and rise in expectations of future policy interest rates.

The commentary on the local economy was positive with the RBA describing the Australia economy as resilient and that spending is picking up following the Omicron setback.

“Household and business balance sheets are in generally good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed,” the RBA said.

The RBA made explicit reference to labour costs this month compared to February when it was a subtle reference with the use of “aggregate wages growth.”

CB-Intel was the first to point out in early December about the change in RBA’s focus to broader measures of wages growth versus just wage price index.

The RBA reiterated its guidance to not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range.

“The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve,” the RBA said.

--Contact: Sophia@centralbankintel.com