RBA: Positive yet patient - Wells Fargo

Earlier today, the Reserve Bank of Australia, kept the key rate unchanged at 1.5%. According to analysts from Wells Fargo, the official policy statement following the February meeting revealed a slightly more confident outlook.

Key Quotes: 

“As the RBA has been on hold, and is expected to remain so, this slight shift in tone may be perceived as an incremental move toward a preference to raise rates. Though we caution, the timing of any move is still well into the future.”

“As the Board expects progress, both in the domestic and global economy, to foster gradual growth in Australia, it is clear that the RBA is in no hurry to raise rates and is content with where rates stand at present.”

“Despite the confident tone of the statement, the RBA remains cautious of household consumption. With weak wage growth and high household debt levels, the bank continues to highlight uncertainty pertaining to the consumer.”

“As the RBA prepares to increase rates in the future, they will likely be cautious of the effect of higher rates on mortgage rates for the already indebted consumer.”

“However, despite slight caution related to the consumer, it is clear that the Australian economy is on an upward trajectory.”

“Is a 2018 Rate Hike in the Cards for Australia? Lackluster wage growth coupled with below-target inflation do not justify a rate hike at this time. However, as the labor market continues to tighten, wage pressures are expected to pick-up, albeit slowly, which should eventually aid in higher inflation. Similarly, continued improvement in the global economy should support an up-tick in commodity prices, which will also likely add to increased inflationary pressures in Australia.”

“Our view is that the next move will be to raise rates; however, that may not happen until late in the year or, if inflation still has not firmed meaningfully, not until early 2019.”