Source : Perth Now news
The Reserve Bank board was widely expected to raise interest rates again.
In the end it was a photo finish.
The central bank’s monetary policy board voted five-four in favour of a 25-basis point rate hike on Tuesday, taking the official cash rate to 4.1 per cent.
It was the narrowest decision since the RBA began publishing the votes.
But the split was not down to a disagreement over whether to hike or not, said Governor Michele Bullock.
The argument was one of timing.
The board agreed demand was too high for supply in Australia, even before the Middle East conflict closed a key oil artery and added another supply shock to the system.
But given the uncertainty around the geopolitical situation and the speed at which events are liable to change, the four dissenters wanted more time to assess the situation, Ms Bullock revealed.
Westpac chief economist Luci Ellis said the split decision made a third successive hike look less certain, but retained her call for a May rate rise as the question was one of timing.
“Whether the conflict in the Middle East is still ongoing and how it evolves from here will be crucial,” she said.
Only US President Donald Trump can know whether the war will still be raging come May. In a protracted conflict, commodity analysts have warned benchmark oil prices could rise above $US150 a barrel.
That would add more than 80c a litre to pre-war petrol prices and cause inflation to ripple over all aspects of the economy.
On the other hand, the longer the war drags on, the higher the risk of an economic downturn.
“Another possibility is that developments in the Middle East, particularly the sharp rise in oil and gas prices, deliver more of a global downturn that flows through to Australia too,” HSBC chief economist Paul Bloxham said.
“Our central case is that the RBA needs to deliver more tightening yet, with a hike pencilled in for May. However, there is considerable risk around this view, particularly given current global uncertainties.”
Australia’s labour market is still looking strong but Ms Bullock said the bank did not want to see a recession or a large rise in unemployment if it could avoid it.
“If it does look like the world economy is in big trouble, and Australia, then that will have different implications for inflation, and we will be looking very hard at what we need to do in the circumstances,” she said.
Treasurer Jim Chalmers said developments in the Middle East were making Australia’s inflation challenge worse.
“The impacts of what we’re seeing in that part of the world are already substantial, but we don’t know yet how enduring those very substantial economic pressures will be,” he told reporters in Canberra.
“It depends very heavily on how long the conflict in the Middle East continues for.”
