RBA
The RBA meeting this week was uneventful. The RBA kept the cash rate and three year yield target unchanged at 0.10% while also keeping its QE program the same. The main headline remains the same for the RBA that conditions for accommodation are to remain until 2024. Unemployment is expected to decline to around 5% at the end of this year and to 4.5% at the end of 2022. Inflation is seen at 1.5% this year and 2% in mid 2023 with a temporary spike higher in June of this year to 3%. Like most central banks a spike higher in prices is expected to boost inflation temporarily post COVID-19.
The decision was as expected and with the Federal Reserve remaining bearish it was very unlikely the RBA would push ahead of the Federal Reserve in the way that the Bank of Canada has done.
The takeaway
The main takeaway from the RBA is that employment data is one of the key metrics to look at going forward. Australia's Treasurer Josh Frydenberg is wanting to re-focus Australia's monetary policy to bring down unemployment to 4%. Until that figure has been hit the RBA will not be looking at cutting interest rates. This is a significant move as the chart below shows that unemployment has not been that below 4% since the early 70's. The thinking is that inflation will not be hampered by a tighter labour market in the medium term. So, as a result, Australia should aim to get more people in the labour market to help outcomes for individuals.
You can readmore on the details here.
Date for the diary: May 11
Exactly how this new strategy for unemployment will be worded is going to be unveiled on May 11. So, one date for the diary. So, from here on in, expect employment to get more and more focus. When that is going well, the RBA will be more bullish. When unemployment is rising the RBA will be more bearish. Knowing this steer on employment read the RBA minutes and you will see how it jumps out at you. Read here.
