Reserve Bank board members have left a pause in rates on the table at the next meeting in April, but more rises could be necessary to tackle inflation.

The minutes from the Reserve Bank board’s meeting were broadly consistent with recent softening in language in preparation for keeping interest rates on hold sometime soon.

In the minutes detailing the meeting held two weeks ago, board members deliberated the case for moving to the sidelines but ultimately landed on another 25 basis point hike.

In support of another rate rise was inflation that was still “too high” and weak productivity indicators in the national accounts that “could make inflation more persistent than previously thought”.

The fact that Australia’s cash rate is lower than several other countries is also weighing on board members, as it could impact the exchange rate.

On the other hand, the board recognised that monetary policy was in restrictive territory and that the economic outlook was uncertain.

The board also pointed to the complications posed by lagging impacts in monetary policy, with robust savings buffers and the prevalence of fixed-rate mortgages likely dragging out the wait time.

Looking forward, the central bank stuck with its softened phrasing that “further tightening of monetary policy would likely be required” but also said they would “reconsider the case for a pause” next month.

ANZ senior economist Felicity Emmett noted the minutes were quite dated given recent speeches and public appearances from senior RBA officials, including the governor, and the chaos in financial markets.

She said there were still some interesting takeaways, however, including scepticism about the spate of weaker growth, labour, wages and inflation data.

The board also pointed to the possibility of rebounding strength across economic indicators as seen in the United States and other countries.

Since the meeting, the board has seen a strong labour force report and relatively robust business conditions indicators.

Between now and the April meeting, the RBA will need to digest February CPI data, the retail sales report and the US Federal Reserve’s interest rate decision.

Ms Emmett said that while the risks of a pause had risen, the bank’s economists were still favouring another 25bp hike at the April meeting.

But JP Morgan economist Ben Jarman said the case for a pause in April was “relatively settled” given the central bank’s wariness of interest rate lags.

“The ‘considerations’ section warns against over-extrapolating softness in recent data, so the argument for a pause seems to come more from preliminary signs of traction and respect for lags, than the leading edge of the data alone,” he said.

“This presumably means the case for a pause in April is relatively settled and not too dependent on the next couple of weeks’ worth of data.”

Fresh data released on Tuesday was mixed, with the quarterly industrial trends survey from the Australian Chamber of Commerce and Industry and Westpac revealing a modest expansion in business conditions.

The survey’s actual composite index – a gauge of business conditions – lifted from 49 in December to 55 in March. The expected composite eased from 54.9 to 52.1.

ANZ and Roy Morgan’s weekly consumer confidence survey lost 0.5 points to 76.5, marking the third consecutive week below 80.

Poppy Johnston
(Australian Associated Press)