RBA Review: Continue to be data dependent
RBA keep rates on hold at 4.35%
RBA had kept the cash rate on hold at 4.35%. aligned with our forecast as latest inflation dynamics do not support more tightening. The key forward guidance statement of "Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks." stays and suggest RBA is leaving the door open to rate changes on data dependency. This dovish language seems to suggest the RBA is tilting towards not hiking anymore but will let data guide their action as they are not sure where inflation may go in a short run.
"The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation." It suggest the RBA is closely monitoring inflation dynamics, instead of focusing on quarterly CPI figure. The rhetoric is similar to what the RBA has been stating for the past month and they have acted accordingly to hold in the December meeting with monthly CPI moderates.
The decision remains in line with RBA's rhetoric in2023 so far after they switch be data dependent and stays patient in assessing the effect of cumulative hikes while keeping a close eye on inflation dynamics. They reinforced the hike in November with more stubborn inflation, strong economy, solid labor market and house price remain high. We maintained our forecast of terminal rate to be 4.35% with no more hikes in sight. RBA has removed previous wordings of "Inflation in Australia has passed its peak but is still too high and will remain so for some time yet."in the statement which is viewed as a dovish tilt by market participants. Yet, we do not think the RBA has a specific hawkish nor dovish take at the moment because they are simply being data dependent. But the room for RBA to tighten without significantly hindering economic growth remains minimal. The household balance sheet are restricted by mortgage cost and inflationary living pressure, while business are facing the tightest financial conditions in months, alongside peaking labor market even as the Australian economic growth being stronger than market consensus. The RBA did not change their inflation forecast and seems to be content with the trajectory of inflation by seeing 2-3 percent in 2025.
Apart from inflation dynamics, RBA is aware of uncertainty around global outlook and how the Australian economy reacts to high rate, given the complexity of inflation dynamics towards different household and business. This warrant caution to market participants that rate decision in the future meetings will remain data sensitive.