The RBA’s patient stance on rate hikes is widely expected to result in interest rates remaining unchanged following the central bank’s March meeting.
In February, governor Philip Lowe indicated that the RBA was “prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”.
Since then, unemployment was found to have remained at 4.2 per cent with forecasts pointing towards a fall below 4 per cent occurring later in the year in line with the RBA’s goal of full employment.
Annual wage growth lifted to 2.3 per cent during the December quarter but still remained below the RBA’s target of growth of around 3 per cent.
Furthermore, Russia’s invasion of Ukraine is seen to have increased the likelihood that rate hikes may take place later than expected.
“Recent communication suggests that the RBA would be ‘patient’ in withdrawing any policy stimulus,” commented GSFM investment strategist Stephen Miller.
“If anything, recent wage developments and the uncertainties wrought by the Russia-Ukraine conflict would only reinforce the RBA’s ‘patient’ disposition.”
While markets are currently pricing in rate rises to about 1.20 per cent this year, Mr Miller said that recent events may present a challenge to these expectations.
“The Russia-Ukraine conflict is clearly a risk to global economic growth and despite some unhelpful inflation consequences via surging commodity prices, particularly in the energy complex, the conflict might argue for a tactical delay in the withdrawal of policy stimulus,” he said.
Similarly, AMP Capital chief economist Shane Oliver predicted that the conflict was unlikely to stop monetary tightening by central banks but could prevent rapid tightening moves.
“The uncertainty and hit to confidence it provides in the short term will probably help head off a 0.5 per cent rate hike next month in the US and may at the margin help delay RBA tightening,” he said.
AMP Capital has not yet shifted from its view that the first rate hike will occur in August.
“Ultimately the hit to economic activity globally and in Australia is likely to be limited and the upwards pressure it adds to energy prices and wider commodity prices will reinforce the case for monetary tightening,” Dr Oliver said.
