It’s a big, big week for major central bank decisions. And as mentioned last week, the RBA is arguably the most interesting of the ones on the agenda this week. And they duly delivered on that earlier by raising the cash rate from 3.85% to 4.10% today.
The RBA made it clear that they were responding to a material shift to upside risks to the inflation outlook, amid the US-Iran conflict, as well as domestic pressures. However, the vote split was more mixed with it being a 5-4 decision. That being said, RBA governor Bullock did well to clarify that the split was more to do with timing and not direction of monetary policy.
Her press conference helped to provide much clarity on the decision today, reaffirming that the central bank remains ready to act further if necessary. But for now, they won’t pre-commit to anything further after taking one step closer to be more aligned with other major central banks in waiting on how the Middle East developments will play out.
(RBA rate hike odds shifted even further to ~82% before the decision today)
As mentioned in the week before:
“As for the other major central banks, the rate decisions will be less interesting with no changes expected across the board. The only main thing to watch will be how policymakers respond to possibly higher inflation to come.
Will they revert back to what we saw back in 2021-22 in dismissing it all as “transitory”? That was a mistake at the time, so it will be interesting to see if history will repeat itself.
But considering that we’re just less than two weeks into the conflict, I would expect central banks to play for flexibility. And that means reaffirming a wait-and-see approach and not jumping to conclusions on how price developments are going to change. They will definitely acknowledge the risks of higher oil prices and inflation to come, but they won’t prematurely commit to anything so early on.”
A reminder on the agenda to follow:
Reserve Bank of Australia (RBA) meeting decision – 17 March- Bank of Canada meeting (BOC) decision – 18 March
- Federal Reserve (Fed) FOMC meeting decision – 18 March
- Bank of Japan (BOJ) meeting decision – 19 March
- Swiss National Bank (SNB) meeting decision – 19 March
- Bank of England (BOE) meeting decision – 19 March
- European Central Bank (ECB) meeting decision – 19 March
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