A dubious pause
The Reserve Bank of Australia (RBA) ended its run of ten consective rate hikes at its meeting today, leaving the cash rate unchanged at 3.6%. That’s ten hikes excluding January of course, which for some reason is a month during which the RBA Board does not meet.
Was there a case for a pause? Sure: Retail sales cooled somewhat in February and Governor Lowe recently claimed that the (experimental) monthly CPI indicator looks to have peaked. But monthly inflation is still running at 6.8% year-on-year – more than double the RBA’s target of 2-3% – and while monetary policy works with significant lags, real interest rates are still very much negative and the economy is running extremely hot (unemployment is at a 50-year low).
The RBA was also late to react to the inflationary wave, so if anything it still has more work to do than other global, developed economies. At the time of writing the United States federal funds rate was 4.75-5.00%; New Zealand’s cash rate was at 4.75%; Canada’s 4.5%; and the UK’s 4.25%.
But what makes the pause especially dubious is the convenient timing.
First, a number of Labour MPs have recently criticised Governor Lowe. Not, mind you, because inflation got out of control; no, they were critical because he hiked rates so much (funny how they never complained when he was juicing the economy back in 2020-21, which is what led to the inflation!).
Second, there’s an the independent review of the RBA due to be released to the public later this month (i.e., before the RBA’s next meeting), along with some of Treasurer Chalmers' “initial views” on the report’s 51 recommendations.
Third and finally, Governor Lowe’s $1,037,709/year contract expires in September and he’s seeking an extension. Bureaucrats such as Lowe might be independent from the government, but they also have their own set of incentives that do not always align with the preferences of the general public.
Make up your own mind.