MNI RBA WATCH: Board To Hold As Election Looms

The Reserve Bank of Australia’s new monetary policy board is set to hold the cash rate at 4.1% when it meets over March 31-April 1, and, with a federal election called for May 3, will avoid significant changes to its strategy or communications.

While Governor Michele Bullock has stressed additional cuts are unlikely in the near term, falling underling inflation, a weaker labour market and a slowing economy will make cuts at the May and August meetings more likely. Updated labour market and Q1 inflation data, plus greater clarity on the impact of U.S. trade policies, will add weight to arguments for additional easing over the next six months.

Markets have priced in only a 7.4% chance of a cut next week but have given the May 20 meeting a 64% probability of a 25bp reduction, with the Aug 12 meeting attracting similar odds. Traders currently expect the cash rate to finish 2025 at 3.45%.

Tuesday’s decision marks the initial test for the newly appointed policy-setting board and follows the RBA’s 25-basis-point rate cut in February – the first of this cycle. (See MNI RBA WATCH: Board Delivers Hawkish 25BP Cut)

WEAKER DATA

The labour market showed signs of weakness over February with employment falling by 52,800 jobs, versus expectations for 30,000 roles to be created, while the unemployment rate held steady at 4.1%, data from the Australian Bureau of Statistics showed.

The RBA expects unemployment to peak at 4.2% by Q2, and has forecast the wage price index to rise by 3.4% over the same period, compared with recent Treasury forecasts of 3% over the 2025 financial year. (See MNI INTERVIEW: RBA Overstates Wages, Two Cuts Incoming - Fabo)

Wage growth strength has been a sticking point for the Reservebut weakness could prompt it to ease more quickly. 

More importantly, trimmed mean inflation, the Bank’s preferred measure, has continued to moderate, with the monthly indicator dropping an additional 10bp over February to 2.7%. 

The ABS will update Q1 WPI on May 14 and publish Q1 CPI data on April 30. 

NEW BOARD

Next week’s meeting will feature two new board members, seasoned macro economist Renee Fry-McKibbin and former retail banker Marnie Baker​.

Following Tuesday’s decision, Bullock is also likely to detail how the new board will communicate with the public, following discussions among members aimed at thrashing out an agreed strategy. 

Transparency was a major feature of 2023’s RBA Reforms, but recent comments from senior leadership has suggested the Bank may restrain board members from sharing their opinions on monetary policy publicly. 

As a lead author of the reforms, Fry-McKibbin is likely to advocate for rules that align with the original recommendations.