The RBA has been keeping to a very dovish script despite the fact that short term interest rate markets are pricing in six 10bps rate hikes this year. See here for the last breakdown of March’s RBA meeting. You can read the full text here. The dovishness of the RBA is being looked through by the market as the pricing for interest rate hikes shows. GDP is at 4.2% in Australia, jobs data is strong with unemployment at 4.0%, and headline inflation is above the RBA’s median target at 3.5%.

In the last RBA meeting, we identified three areas in which the RBA needs to see progress. These areas remain key.

1. Wages

See here for an explanation as to why wages are important for the RBA. The RBA want to see wages growing at a rate of 3% y/y in order to have the confidence to hike rates. This remains the most important part of the jigsaw. When we get wage price data, which does not come in now until May 18, this will be a crucial focus. Hot wages, at or near 3% will move the RBA’s hand as they have already told us that is what they are looking for.

2. Russia/Ukraine risk

The RBA stressed these risks in the last meeting and the conflict still continues, so that will inject some uncertainty bar a cease to the conflict before the RBA meeting.

3. Inflation

The next inflation print comes in on April 27 and the RBA wants to see inflation ‘sustainably’ above their target. Now, what it means by that is that it wants to see inflation in places other than the supply chain. Headline inflation is already above its target and it expects it to only drop to 2.7% next year. So, you could argue that the RBA’s target for inflation has been reached. However, the RBA will say ‘ we want inflation to be not just in the supply chain’. It seems that this is what it means to be sustainable.


The outlook for Australia’s recovery looks good, especially with commodity prices surging. Australia exports large amounts of Iron Ore and Coal and these prices are buoyant. The easier monetary policy for China should also underpin an Australian recovery, so the bank should be in a reasonably confident position. However, it is unlikely that they will recognise this as a reason to shift on interest rates. Remember the RBA has kept taking a dovish stance when the data may indicate reasons for more optimism. One thing we must bear in mind is the housing market. A red hot housing market, with elevated prices on low interest rate deals, is a recipe for disaster if rates have to rise quickly. It may be the consumer that the RBA is trying to protect by keeping a dovish stance.