Standard Chartered’s Nicholas Chia notes the Reserve Bank of Australia (RBA) lifted the cash rate to 4.35% in an 8-1 decision, but Governor Bullock later softened the hawkish tone. The bank’s baseline is for no further hikes, though risks lean toward another move in H2 if growth stays above trend. Elevated energy prices and potential fuel shortages pose demand-destruction risks.

RBA holds hawkish bias despite pause baseline

"The Reserve Bank of Australia (RBA) raised the cash rate to the cycle-high 4.35% at the 5 May meeting – in line with our expectations (see RBA – Another rate hike on the cards). The policy statement, which referenced upside risks to inflation, and the 8-1 vote split screened hawkish."

"However, the RBA flagged the risk of demand destruction from a prolonged energy crisis, which could mitigate some inflationary pressures, likely at the expense of the labour market."

"At the press conference, Governor Bullock appeared to dial back some of the hawkishness in the policy statement."

"Our baseline is that the RBA will keep the cash rate at 4.35% for the foreseeable future. We do not rule out further rate hikes, but we think the bar for the RBA to tighten policy further is high."

"The risk is skewed towards another RBA rate hike in H2 if the economy continues to chug along in above-trend growth, shrugging off tighter monetary policy so far."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)