I got a bit lucky on the RBA today. I was right – they held steady at 4.25% – but the truth is I had my reasons wrong.
Experience has taught me that the unemployment rate is the best indicator of the economy’s state, and as it had been steady at ~5.25% for three quarters, I judged that the RBA would continue to assess demand as around trend.
Thus, I concluded, the RBA would hold steady – for they lacked evidence that there had been a material weakening of demand. The last line of the Bank’s statement said otherwise – the demand test had been met:
The Board’s view was also that, were demand conditions to weaken materially, the inflation outlook would provide scope for easier monetary policy. At today’s meeting, the Board judged the pace of output growth to be somewhat lower than earlier estimated, but also thought it prudent to see forthcoming key data on prices to reassess its outlook for inflation, before considering a further step to ease monetary policy
So – clearly the RBA is waiting for Q1 CPI on 26 April. You might argue that unemployment is also a key bit of price data (that’s sure how i think of it), so my mental model isn’t totally wrong … but for sure, I’ll be paying more respect to GDP from now onward.
My point forecast for Q1 Core CPI is a little below 0.6%q/q, and I think that will be low enough for an easing. My guess is that the Government will leak like crazy about how tight the budget is going to be, and then try and pin their star on a May cut.
They are probably hoping for May+June – which will take an increase in unemployment, as well as a tight budget and contained inflation.