The Reserve Bank of Australia (RBA) today left the cash rate unchanged at 3.75%, judging that there was not enough data on the impact of the three previous moves to tighten again. This move came as a surprise, with the market expecting a February move. The RBA said “If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.”
It seems we have moved from the rapid tightening phase that typically occurs once rates start to rise from the low in the cash rate cycle to the more moderate tightening phase where further moves are usually more widely spaced and driven by economic events unfolding. A move in March looks on the cards, if the February reporting season can see the equity market regain some ground and demand indicators hold up. The good news for equity markets is that the RBA appears to have little interest in choking off the recovery and that, by having gone hard early, they may have reduced the risk of a premature end to the economic recovery caused by inflation getting out of hand.
Source: Perennial Investment Partners
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