The RBA just gave notice

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The minutes to the RBA’s March board meeting seem designed to put the market on notice for a rate cut — at any time.

The final paragraph repeated that they would “continue to assess the outlook carefully”, but they added a sentence saying that were holding “the cash rate steady while new information became available that could help resolve the current tensions in the domestic economic data.” (my emphasis). This is an incrementally dovish step from the February meeting.

It’s not surprising that they should be more dovish. The minutes downgraded just about everything: global growth, dwelling investment, consumption, the labour market, and it added a few new bits about tighter credit conditions (specifically about tightening to households via the increased HEM, introduction of DTI limits, comprehensive credit reporting, and tightening of underwriting standards for small business loans).

Among all these items, the thing they are giving the most careful attention to is the labour market. This is very important for Gov Lowe, as he needs a strong labour market to keep upward pressure on inflation — which has been below target and outside his control range for pretty much the whole time he’s been Governor.

So what are they watching? The monthly jobs report.

The minutes said that “further reduction in spare capacity underpinned the forecast of a gradual pick-up in wage pressures and inflation. Given this, members agreed that developments in the labour market were particularly important“. The RBA needs a downtrend of the unemployment rate to maintain their forecast of accelerating inflation.

For this reason, the monthly jobs reports seem asymmetric: a weak print gets a cut, but a strong one won’t end the vigil. So long as the growth data remains weak, the RBA will be looking for evidence of weakness in the labour market to confirm the downturn … and that evidence will complete the case for a rate cut.

We get that new information on Thursday 21 March. I still favour the case for a May rate cut — but after the March minutes, the RBA could cut on 2 April in response to a weak jobs report and (justifiably) say that they had given the market notice.


  1. Surely one bad jobs number wouldn’t be enough – they’d look ridiculous. Two consecutive bad numbers at the least, especially since jobs growth has been much stronger over the last two years than (real) GDP growth on its own would indicate.

  2. Me thinks they will combine the labour market data with the other data and market intelligence they get and then make a decision.

  3. no change from Feb minutes, which had “Members would continue to assess the outlook carefully”?

  4. today’s labour market data does not give any evidence for a rate cut. Indeed if looking at a 3 month rate there will not be a rate cut

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