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Subtle detail in RBA statement could save mortgage holders thousands

Interest rate are on hold but the question on everyone's lips is: 'When will the cut be delivered?'

Unwilling to admit the mistakes of the extent of its interest rate hiking cycle in 2023, the Reserve Bank of Australia (RBA) left interest rates steady after its regular board meeting.

It did acknowledge the tsunami of evidence showing weaker growth, rising unemployment and the free-fall in inflation all of which are pointing to economic policy being tight, which in turn means a risk of over achieving on the policy objectives of the RBA.

Already, GDP in per capita terms has fallen for three consecutive quarters, a horrible result for the well-being of the Australian population.

RBA head Michele Bullock in front of a statement of monetary policy decision with the words 'The board is not ruling anything in or out' highlighted.
The RBA has held rates again, but there's a subtle change in wording that is the best sign of cuts we've had yet. (Yahoo Finance)

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This has been associated with inflation falling from a peak of 8.4 per cent to now be at 3.4 per cent. The drover’s dog can now see that inflation will fall to the RBA target in coming months as the economy remains sluggish.



All of these factors are feeding into weakness in the labour market. The unemployment rate is now 4.1 per cent, up from the low of 3.4 per cent in late 2022. In human terms, the number of people unemployed has risen by 114,100 from the October 2022 low to over 600,000.

What’s more, the underemployment rate has risen from a low of 5.8 per cent of the workforce to 6.6 per cent. Underemployment is a measure of people who have a job but would prefer to work more hours.

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A rise in underemployment points to businesses cutting the hours – and pay – of casual, gig or part-time workers.

The RBA acknowledged this scorecard of disappointing news, adding that it estimates that wages growth has peaked, which is important in the interest rate cutting scenario that is rapidly unfolding.

Subtle change in RBA wording: 'Welcome to the real world'

In holding interest rates steady at its March meeting the RBA surprised no one. It was always going to be about what the RBA said in its statement, not what it did.

And this is where the change in language from the RBA was so important. No longer did it say that it considered increasing interest rates. Rather it moved to a position where in reference to the outlook for policy it “would not rule anything in or out”.

In other words, there was, at this stage, an even risk that the next move interest rates would be down as well as up.

Governor Michele Bullock made this clear at her press conference after the interest rate decision was announced, where she said, rather obviously, that if the data in coming months was stronger than the RBA was currently forecasting, the next move in interest rates would be up; if it comes in weaker the next move would be a cut.

As some of my economist colleagues noted, “welcome to the real world!”

When will interest rates come down? Key signs

Between now and the next meeting of the RBA Board on 7 May, the critical data points will be the March quarter inflation data and the monthly labour force releases. These will be critical in any decision to move interest rates from the current rate as will the data on housing, household spending and business conditions and consumer sentiment.

In addition, there will be critical news on the global economy, in particular China, the US and the Eurozone. Changes in commodity prices will also figure in the decision making process.

On current readings, the bias of all this news is likely to be to the downside, which will open the door for the RBA to at the very least express a view that an interest rate reduction is imminent, or if the data are weak enough, it just might pull the trigger and cut interest rates for the first time since the COVID pandemic.