RBA: Slow is smooth and smooth is fast – TDS

According to strategists at TD Securities, the Reserve Bank of Australia (RBA), despite delivering the third straight 50bps hike, sounded dovish in its monetary policy statement.

Key Quotes:

“Despite the fact that inflation is now expected to stay elevated at 4% by Q4' 2023, above the Bank's 2-3% target inflation band, markets focused on the addition of the Bank's guidance that the policy normalisation ahead is not on a pre-set path.”

The monetary policy statement suggested that “the Bank has dialled down its focus on returning headline inflation back into the 2-3 percent target range "next year" (as was noted in Statements earlier this year) and it has now shifted to achieve this "over time". In contrast, inserting "keeping the economy on an even keel" suggests the Bank is placing more emphasis on growth and hence engineering a soft landing.”

“If the Bank really wanted to get on top of inflation and return it back into the 2-3% target band next year, it could raise rates aggressively. However the fact that it expects inflation to remain well above its target band in 2023 at 4% implies the Bank is in no pressing rush to normalise monetary conditions rapidly. In other words, rapid 50bps hikes are becoming less likely, as hiking aggressively could adversely impact growth.”